In reaction to President Obama’s proposed plan on changing the income tax deferment rules for corporates, Steve Ballmer the Microsoft CEO warned that Microsoft would move a chunk of it’s operations overseas.
Bloomberg News reported that Ballmer remarked that he would move the jobs overseas if the purported international tax reforms are passed stressing on the fact that the current US taxes make hiring workforce in U.S. expensive.
President Obama believes that under the existing tax law, MNC’s “ship jobs overseas” as companies can instantly deduct costs on foreign investment from their taxes in the U.S. and putt off paying their taxes on profits earned overseas until it gets repatriated back to the country.
The latest tax plan released by the Treasury department aims to alter the deferral rules such that a company would not be able to receive deductions on the tax returns which support its investments overseas till the time it pays out taxes on its overseas profits, the only exception being spends on experiments and research activities. The plan would be effective in 2011. The Treasury department anticipates that this would raise tax revenues by an additional $60.1 billion during 2011-2019.
Obama’s move intending to increase domestic investments may actually backfire as Ballmer’s remarks indicate that such reforms might achieve opposite results as companies might be forced to operate their businesses overseas as a result of double taxation.
President of the Business Roundtable, John J. Castellani reacted to this by saying that the timing for this announcement couldn’t have been worse as it would cripple the companies in U.S. from competing with the foreign markets. He further added that this might result in more pink slips and dampen the economic growth as well.
Chief Economist Dr. Marty Regalia of the US Chamber of Commerce said that U.S. companies would find it difficult to compete in the global marketplace as it is the only industrialized country to pay double the taxes. He opined that deferral for U.S. companies is therefore necessary as countries overseas do not subject companies to double taxes.
Obama administration is facing opposition from business groups as they feel he is not addressing the global competitiveness of domestic companies and provide a thrust for investment activity by reducing corporate taxes. Currently corporate tax rate in U.S. is a whopping 35%, 2nd highest after Japan.
MNC’s in the U.S. pay out vast sums as other taxes along with corporate tax. The “Total Tax Survey”, which was released this year by PWC states that the 40 participant companies paid $94 billion in taxes in the financial year 2008 out of which state and federal corporate taxes constituted $28.5 billion. The participant companies paid out $122 billion as salaries and wages to 1.6 million workers in the U.S.
Corporations also facilitated the government in tax collections unofficially by collecting/remitting $169 as withholding/sales/excise/customer/employee taxes for every $100 of corporate tax.
