In the latest Fortune (within an article that?s not yet posted online), Geoff Colvin starts his latest column with the following: ?Sometimes what?s politically irresistible is economically nonsensical.?
His topic is the Obama administration?s efforts to force corporations to pay more taxes on overseas earnings. Colvin draws attention to the administration?s attempt to use a ?smooth bit of political rhetoric? to equate international corporations with people who dodge American taxes by parking income in foreign tax jurisdictions.
The average citizen had to conclude that most big U.S. companies are tax cheats. Only a dedicated student of accounting would figure out that the term ?tax haven? as defined by the Treasury Department means any country with a lower corporate tax rate than America?s, which is all counties except Japan.
? [C]urrent rules create incentives for U.S. companies to operate anywhere but here, at the cost of U.S. jobs. The White House therefore proposes charging all American companies full freight ? the whole difference between their overseas taxes and the U.S. corporate rate ? on all their profits as soon as they?re earned, no matter where. This measure, in their minds, would bring jobs home.
If the logic eludes you, you?re not alone. The bottom-line effect of the change would be a steep tax hike ? more money vacuumed out of corporate coffers. Would that make U.S. companies competing in a global economy more inclined to hire additional workers in the highly expensive U.S.? The answer is clear.
