A February 26 MarketWatch.com report noted that U.S. Senators Hillary Clinton and Barack Obama, who are vying for the Democratic Party’s presidential nomination, are both in favor of double taxation. They apparently have tossed out economic common sense in favor of populist pandering.
The article stated:
[T]hey're both taking aim at a decades-old part of the U.S. tax code that allows companies to defer paying U.S. taxes on earnings made in foreign countries until those earnings are brought back to the U.S. Clinton argues that money reaped from ending tax breaks for American companies with operations abroad could be used to invest in the U.S. economy. Obama, D-Ill., suggests that tax breaks could be extended to companies that create "good jobs with decent wages here in America." Manufacturers have historically supported the foreign earnings deferral as a way of leveling the playing field for U.S. companies doing business overseas. Most foreign countries only tax income earned within their own borders but the U.S. taxes income wherever it's earned by American companies. The deferral was enacted to mitigate the pain of "double taxation," that is, a company's profits being taxed both by the U.S. and the foreign country in which it's earned.
Of course, economic reality shows that economic production is fluid. It can, does and should be free to shift to different places based on a wide array of factors, including labor costs, productivity, energy resources and costs, innovation and entrepreneurship, transportation, assorted government-imposed costs, and more.
From a policy perspective, it would make much more sense if U.S. policymakers concentrated on reducing tax and regulatory costs at home. For example, we have one of the most non-competitive corporate income tax rates among developed nations.
The answer is lower, not higher, taxes on U.S. corporations.
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