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Obama's Attack of the Imaginary "Outsourcing Tax Break" Could Have Real Consequences Like many I watched the State of the Union last night. I’ve also read it. And reread it. But for the life of me I still can’t figure out what President Obama was talking about when he said, “It is time to stop rewarding businesses that ship job oversees.” I wasn’t the only one left confused. “The truth is that not even Mitt Romney’s tax accountant could get him a tax write off for moving jobs to Bangalore. So what I the name of Warren Buffet’s secretary could Obama possibly mean,” wrote Shikha Dalmia of Reason. And it’s not as if this was just a one-liner that some young speechwriter through in there just to play up the populist angle. Obama repeated it over, and over, and over. “Right now, companies get tax breaks for moving jobs and profits overseas.” “If you’re a business that wants to outsource jobs, you shouldn’t get a tax deduction for doing it.” “No American company should be able to avoid paying its fair share of taxes by moving jobs and profits overseas.” “It is time to stop rewarding businesses that ship jobs overseas.” Unfortunately for Obama saying something a bunch of times doesn’t make it true. The fact is, no such tax break exists. Indeed, the only thing that I can think of that Obama may be referring to isn’t a tax break at all, it’s a clumsy attempt to prevent America’s corporate tax code from being worse than it already is (which is pretty bad). Currently, the United States is one of the few remaining nations to use a “worldwide” system that taxes business income earned outside national borders. The U.S. also has the distinction of having the second highest (soon to be the highest) corporate tax rate among OECD nations, and ranks and embarrassing 124th out of 183 countries worldwide in total tax rate faced by a typical corporation. Those two facts mean that a U.S. based company that earns income in say, France, would pay the French rate, then turn right around and pay the U.S. rate on top of it. Not exactly a formula for success. To try and alleviate the burden, Washington came up with an overly complicated system by which we maintain our “worldwide” scheme but allow companies to only pay the difference between the U.S. rate and the tax they’ve already paid as well as delay that tax payment until they bring the money back to the U.S. (repatriate it). This creates the odd incentive for businesses to leave their cash overseas rather than bring it home to invest, hire, or heck, even hand out in dividends. It’s a complicated, mish-mash of a system that is ill-suited for the global marketplace. President Obama is right to cheerlead for its reform. But reform shouldn’t mean making it even more complicated and even more uncompetitive. Sadly, that’s exactly what Obama sounds like he wants to do. Rather than reform the system to lower the rate and eliminate loopholes, President Obama wants to create more loopholes for certain favored industries (“high-tech manufacturing”) while enacting a de facto tax hike on multinational firms. This is no way to encourage firms to bring their profits back to our shores, it’s a strategy that incentivizes companies to move off our shores altogether! Hopefully, Obama will read, and reread, this post until he figures that out. 1 Comments | Post a Comment | Sign up for NTU Action Alerts
What Wasn't in the State of the Union? So President Obama's 2012 State of the Union is over now and everybody's analyzing the details of what he said (including our NTU Foundation, where researchers are working on figuring out exactly how much his proposals would cost for taxpayers). For someone who claims to be laser-focused on economic growth and job creation, we couldn't help but notice that he left a few things out that SHOULD have been in the speech. For example... The Keystone XL pipeline The President conveniently neglected to mention that his Administration just last week denied a permit to build the Keystone XL pipeline, a project to safely deliver Canadian energy resources to the American market. Construction of Keystone XL could have generated as many as 20,000 jobs while bringing much-needed energy to a hungry domestic market that has faced obstacle after obstacle from this Administration. We've been calling for its approval since last summer, but unfortunately for taxpayers and consumers, the President ignored those calls and put the kibosh on the project. Unlocking valuable spectrum Cost-free to taxpayers, beneficial in reducing our staggering deficit, and absolutely vital to the continued growth and innovation of technology and the internet. What no-brainer policy am I talking about? Competitive spectrum auctions. Did the President talk about it last night? Of course not! There have been rumblings from both sides of Capitol Hill and both sides of the aisle about spectrum for some time, but some Presidential leadership could work wonders in ushering a win-win policy to completion. Allowing businesses to...you know, conduct their business This one's sort of a personal pet-peeve, but of course the President failed to mention the meddling in which his Administration has engaged/will engage in private business operations. Things like the AT&T - T-Mobile merger (which NTU supported) that his Justice Department and FCC squashed last month. Or the ongoing FTC antitrust investigation into Google, a company which charges its users exactly $0 to access its search engine and other services. Or the ongoing process of the Express Scripts - Medco Health Solutions merger. Keeping the federal government out of the way, by and large, is the best way to foster economic growth, but this Administration has time and again shown a tendency towards populist intervention that is unhelpful to say the least. An energy strategy not centered on subsidies The President did talk about energy last night, and some of it was commendable. He talked about opening up some more areas under federal control to energy exploration, though I'll await further details before judging. But most of what he said focues on how we should be showering even MORE subsidies on energy technologies that are to the liking of Barack Obama (namely: solar, wind, anything vaguely "green" or "renewable"). And of course he did it while taking swipes at the "Big Evil Oil Companies" he so frequently derides. Funny side note: the biggest of the oil companies that are the focus on Obama's vitriol was just passed as the most valuable company in the U.S. by Apple. The wife of the late Steve Jobs sat beside the First Lady during the speech and got a specific shout-out (a positive one!). I guess he doesn't mind that they're "the 1%" of companies and that they're sitting on tens of billions in largely idle cash reserves, another practice he has criticized elsewhere. Any serious discussion of bipartisan spending reductions The President made some vague remarks about "working together" in a bipartisan fashion, along with some passing comments about reducing waste in the federal budget. But he didn't come anywhere close to making it a serious and substantive part of his speech. Too bad. We already worked with the liberal U.S. Public Interest Research Group to give him a $1 trillion head start on spending cuts that left and right could agree upon and stand ready to assist him. Let's just say I'm not eagerly awaiting his call. What else should the President have covered if he were serious about economic growth and job creation? 0 Comments | Post a Comment | Sign up for NTU Action Alerts
The Dirty Reality Behind Obama's Clean Energy Standard For the second year in a row President Obama used his State of the Union to call for the creation of a “clean energy” standard (CES). Although various proposals have been knocking around Congress the past several years, the key feature is a requirement that electric companies generate a stated percentage of their electricity from certain enumerated “clean” sources. President Obama hasn’t been shy about his desire to create a green (or clean) energy economy. In fact, one of his oft-repeated campaign promises was to invest $150 billion and create 5 million green jobs. Obama has been doing his best to make good on the promise by using deficit financed loan guarantees, cash grants, and subsidy payments to try and jumpstart the market for green energy. The result, as one executive of a green-energy company told the New York Times, “I have never seen anything that I have had to do in my 20 years in the power industry that involved less risk than these projects. It is just filling the desert with [solar] panels.” States have also been chipping in, offering their own tax breaks and clean energy standards, but the results have led many to reconsider. The New York Times reports: These mandates often have resulted in contracts with above-market rates for the project developers, and a guarantee of a steady revenue stream. “It is like building a hotel, where you know in advance you are going to have 100 percent room occupancy for 25 years,” said Kevin Smith, chief executive of SolarReserve. His Nevada solar project has secured a 25-year power-purchase agreement with the state’s largest utility and a $737 million Energy Department loan guarantee and is on track to receive a $200 million Treasury grant. Because the purchase mandates can drive up electricity rates significantly, some states, including New Jersey and Colorado, are considering softening the requirements on utilities. Failing to learn from the example of such states, President Obama is now proposing to create a national standard. The result will be a windfall for clean energy companies and a serious hit for taxpayers. A clean energy standard “works” by taking lower-cost choices away from consumers. By requiring utilities to buy certain forms of energy, namely, wind, solar, biomass, and other Washington-approved fuels, a stable, but artificial market is created. It’s the equivalent of trying to reduce car emissions by mandating that everyone get around using roller-skates at least 80 percent of the time. Sure, it would take a lot longer to get to places, would be completely unworkable for many people who regularly travel long distances, and would create an overnight market for roller-skate makers. But whereas Americans would largely pay for the roller-skate mandate in wasted time, a clean-energy mandate would result in vastly more expensive electric bills. Those higher prices arise by forcing providers to use costlier forms of energy than they would otherwise use. And those higher costs would go straight to the clean energy companies that President Obama has been so keen on subsidizing. You see, Obama made a promise to create 5 million green-energy jobs. And that’s a promise he intends to keep…even if it just means shuttling money out of American’s wallets and into “clean” energy companies. Gives new meaning to the words money laundering. 1 Comments | Post a Comment | Sign up for NTU Action Alerts
1,000 Days Without a Budget The U.S. Senate has not passed a budget since April 29th, 2009. 1,000 days have now passed. The failure of the Senate to do so has led to several near shutdowns of the government. Both parties are quick to blame each other over the stalemate, yet the Republican-controlled House managed to pass a budget in April of last year. Through media appearances, and viral videos, Republicans are calling attention to this fact. Sen. Jeff Sessions (R-AL), Ranking Member of the Senate Budget Committee, and Rep. Paul Ryan (R-WI), Chairman of the House Budget Committee stated: "[Today] will mark a sad milestone in the history of the United States Senate: the 1,000th day since Senate Democrats last offered a budget plan to the American people. Senate Democrats abandoned their official duty to prioritize Americans’ hard-earned tax dollars and tackle our nation’s most pressing economic challenges—dealing a painful blow to fiscal progress that may be felt for some time." Last night, President Obama addressed a nation with over $15 trillion in debt knowing that his own party in the Senate has failed to work out a solution. As Ryan and Sessions stated, “The president must also deliver what he has so far refused: Serious reforms to change our debt course and prevent fiscal disaster.” 0 Comments | Post a Comment | Sign up for NTU Action Alerts
A Fix for a Growing TV Debacle Recently, I wrote about a brewing disaster in the world of television called retransmission consent in a post called "Government screws up your TV." Basically, disputes between television content providers (e.g. ABC) and television service providers (e.g. DirecTV) that play out on a heavily-tilted playing field threaten to cause blackouts for consumers that are entirely avoidable if only we had a policy structure that made sense. Well, the issue is rearing its ugly head again as a dispute between DirecTV and Sunbeam Television has drawn the interest of Senator John Kerry (D-MA), a legislator who has long had his eye on a legislative "fix" to the problem that would empower bureaucrats and do little to solve the underlying problem. (I'm sure this has nothing to do with the fact that a prolonged blackout threatens to keep many Boston-area viewers from being able to watch their Patriots play in the upcoming Super Bowl) In a phrase that I utter approximately once a month, Senator Jim DeMint (R-SC) to the rescue! In conjunction with Representative Steve Scalise (R-LA), he has introduced a great bill called the "Next Generation Television Marketplace Act." This bill takes exactly the kind of approach that I counseled in my post:
Since I'm sure Jim DeMint reads everything I write and immediately drafts legislation based on my wisdom, the bill he drafted looks pretty great at first glance. It would do a few major things: repeal "must carry" provisions that force service providers to carry content whether they want to or not, repeal retransmission consent and compulsory license provisions in order to truly level the playing field between the two negotiators, and repeal ownership limitations that serve little purpose for consumers. By contrast, the approach Kerry had been floating would have inserted the FCC into the middle of these negotiations, with all of the politics and delays that come with them. Though I'm still perusing some of the details, this looks to be a very promising bill and I hope that members from all parts of the political spectrum can come together to support it.
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Obama's Plans Would Hinder, Not Help, American Manufacturing “So we have a huge opportunity, at this moment, to bring manufacturing back. But we have to seize it. Tonight, my message to business leaders is simple: Ask yourselves what you can do to bring jobs back to your country, and your country will do everything we can to help you succeed.” – Obama’s 2012 State of the Union President Obama is not wrong that America has an opportunity to grow its manufacturing base, but if we follow his prescription of higher taxes (especially on investment), empowering unions, and more regulation than it will be a lost opportunity. But don’t take our word for it. Here’s the National Association of Manufacturer’s recent letter to President Obama following the announcement of the so-called American Jobs Act – a plan eerily similar to the vague outline laid out in his State of the Union: “President Obama’s call for tax increases on small businesses, individuals and investors is a poison pill for our economy. The bottom line is that manufacturers need policies that enable them to hire more workers, make capital investments and expand their businesses. More than 70 percent of manufacturers operate as S-corporations and pay income tax at the individual rate, so higher taxes on these job creators would be a devastating blow. The President’s proposal is short-sighted; we should not attempt to solve our nation’s fiscal ills on the backs of businesses striving to expand and add jobs.” 0 Comments | Post a Comment | Sign up for NTU Action Alerts
State of the Union - States' Perspective
On Education President Obama's remarks on education are how shall I put it...disappointing.
At a time when other countries are doubling down on education, tight budgets have forced States to lay off thousands of teachers. We know a good teacher can increase the lifetime income of a classroom by over $250,000. A great teacher can offer an escape from poverty to the child who dreams beyond his circumstance. Every person in this chamber can point to a teacher who changed the trajectory of their lives. Most teachers work tirelessly, with modest pay, sometimes digging into their own pocket for school supplies – just to make a difference. Teachers matter. So instead of bashing them, or defending the status quo, let’s offer schools a deal. Give them the resources to keep good teachers on the job, and reward the best ones. In return, grant schools flexibility: To teach with creativity and passion; to stop teaching to the test; and to replace teachers who just aren’t helping kids learn. We also know that when students aren’t allowed to walk away from their education, more of them walk the stage to get their diploma. So tonight, I call on every State to require that all students stay in high school until they graduate or turn eighteen. ... Of course, it’s not enough for us to increase student aid. We can’t just keep subsidizing skyrocketing tuition; we’ll run out of money. States also need to do their part, by making higher education a higher priority in their budgets. First and foremost, K-12 education should be left to the states and local governments. Any solution in the United States becoming globally competitive will not come from overly expensive programs like "Race to the Top." Most of the President's proposal focusing on increasing taxpayer committments to education, while reducing the few accountability controls on public education. On a broad point, states make education a priority, contrary to the President's insinuations. According to the liberal, Centers for Budget and Policy Priorities, K-12 and higher education funding constitutes upwards of 40% of state spending. Compared to our foreign counterparts, the $91,700 we spend per pupil is the 2nd highest in the industrial world, behind only Switzerland. Despite the massive treasure we pour into public education we have recieved stagnant returns. More students enter college needing remedial courses than ever before. Simply put, and poignant during school choice week, the continued devotion to a public education monopoly is not the solution. Moreover, while potentially laudable, the requirement that the state school all children up until 18 is simply not realistic, either fiscally or administratively. Finally, it is courteous of the President to acknowledge that increased federal tuition aid in higher education has not made college any more affordable. Unfortunately, his solution is for states to bankrupt themselves propping up the higher education bubble. On Milk I’m confident a farmer can contain a milk spill without a federal agency looking over his shoulder. Crying over spilled milk jokes aside, milk control remains a persistant abuse of government authority. Milk control boards have long engaged in price setting and artificially hold consumer costs high. On Health Care I’m a Democrat. But I believe what Republican Abraham Lincoln believed: That Government should do for people only what they cannot do better by themselves, and no more. That’s why my education reform offers more competition, and more control for schools and States. That’s why we’re getting rid of regulations that don’t work. That’s why our health care law relies on a reformed private market, not a Government program. So ends the discussion on the far-reaching law set to go into place two years from now. From a state budget point of view, the primary problem with Obamacare is that it is a Government program. Most of the claimed benefits of reducing the uninsured are only accomplished by massive expansions of Medicaid. I was somewhate disappointed the President did not expound upon the growing problems with the law's implementation. Politico had a decent summary of states who have thus far resisted efforts to stand up insurance exchanges. Another good resource is the Heritage Foundation study detailing some of the financial implications for states. Needless to say, they are not pretty, even when most of the negative effects are masked by an enhanced federal match. Make no mistake, the Government program that is health care reform will bankrupt the states. The long-term budget pressures related to Medicaid, and the enhanced costs associated with Obamacare, are one of the most pressing concerns for state's budgets. A majority of state's attorney generals have filed suit agains the federal government due in part to these concerns. This is a serious for the states and deserves more than one sentence in this speech. On Infrastructure So much of America needs to be rebuilt. We’ve got crumbling roads and bridges. A power grid that wastes too much energy. An incomplete high-speed broadband network that prevents a small business owner in rural America from selling her products all over the world. Investment in legitimate public goods is a necessary and proper role of government. However, as is currently being debated in California, the infrastructure programs being debated are not necessities they are expensive frivalities. California's high speed rail project has ballooned in costs to close to $100 billion. The only reason the project is still be considered rather than sent back to planning is that unless ground is broken soon, the state will forfeit a multi-billion loan from the federal government. Worse, the initial portion of the line will be built in a sparsely populated region, which all experts agree will not generate ridership numbers sufficient to justify construction. It is a boondoggle in every sense of the word. A similar project in Connecticut drew NTU's attention and ire last year. Too often, when the federal government attempts to spur infrastructure development it leads to wasteful spending on the state level. Finally, a brief note on broadband. The stimulus bill dedicated $7.2 billion towards rural broadband networks. The Government Accountability Office found high levels of waste, primarily resulting from duplicative over-builds. For instance, $100 million was spent in Western Kansas to build a broadband network in an area already served by multiple private providers. Therein lies the problem. President Obama is not identifying an infrastructure deficiency, he is trying to make the argument that the government can do a better job than the private sector. As economic studies have shown, this is simply not true. 0 Comments | Post a Comment | Sign up for NTU Action Alerts
Laudable Goals but Lack of Facts Hamper Obama's State of the Union
“A country that leads the world in educating its people. An America that attracts a new generation of high-tech manufacturing and high-paying jobs. A future where we're in control of our own energy, and our security and prosperity aren't so tied to unstable parts of the world. An economy built to last, where hard work pays off, and responsibility is rewarded.”
That’s the vision that President Obama laid out in his State of the Union speech. What he didn’t was any path to achieve those goals.
When it comes to education, the Department of Education’s spending is at an all-time high. Since fiscal year 2000 it has grown from $29.4 billion to $64.1 billion in 2010. But our enormous investment has seen little return. Academic achievement levels have stayed flat. What we need is not more spending, not more programs, but smarter spending and careful reforms.
Similarly, in manufacturing and energy the answer is not more government spending, but instead, finding clearing the way for private sector investment.
We’ve already seen that Washington makes a terrible investor. Projects like Solyndra, Fisker Automotive, and countless other green initiatives were taxpayer-funded gambles that came up snake eyes. Rather than throw good money after bad chasing some campaign promise, Washington should lower corporate tax rates (which will soon become the highest in the world), pass legislation to remove the red-tape preventing entrepreneurs from accessing the capital necessary to get their ideas off the ground, and clear out the underbrush of regulations that is stifling private sector growth. 0 Comments | Post a Comment | Sign up for NTU Action Alerts
Obama's "Subsidize-All-of-the-Above" Energy Strategy
“This country needs an all-out, all-of-the-above strategy that develops every available source of American energy — a strategy that's cleaner, cheaper, and full of new jobs.” – Obama’s 2012 State of the Union
That may be what the United States needs, but it is not what Obama is offering.
First off, it should be a no-brainer that an “all-of-the-above” strategy would include tapping into a safe, plentiful supplier of oil in our neighbor to the north. Nevertheless, the Keystone XL pipeline, a privately funded infrastructure project that would bring tens of thousands of jobs to the United States, was recently rejected by President Obama. The decision came despite a three-year environmental review that found no threat and the inescapable reality that without the pipeline the oil will just be shipped in tankers to China while we continue to import oil on tankers from the Middle East. Yet another triumph for politics over policy.
Secondly, federal subsidization of certain renewable energy technologies has more often than not been a bust. Obama may tout the increased use of renewables and the thousands of jobs created, but when set against the billions of dollars in taxpayer money that has been invested in ensuring their success, those statistics become less impressive. After all, let’s not forget that at the outset of the Obama campaign Obama promised to “create 5 million green jobs.” Now, he’s reduced to touting the “thousands” that he’s managed to prop up with deficit-financed support.
Somehow Obama still hasn’t learned his lesson from Solyndra. 0 Comments | Post a Comment | Sign up for NTU Action Alerts
Obama's Disastrous Idea to Create a Corporate AMT
“From now on, every multinational company should have to pay a basic minimum tax. And every penny should go towards lowering taxes for companies that choose to stay here and hire here.” – President Obama’s 2012 State of the Union
Sound familiar? That’s because individuals already have a similar sounding plan in the Alternative Minimum Tax or AMT. The AMT was put in place to ensure that the taxes of the highest-income taxpayers never fell below a threshold level. Obama would use the term “fair.” At the time of its passage in 1969 it was aimed at 21 of the nation’s wealthiest individuals. Now it hits more than 4 million taxpayers each year.
The problem is that Congress failed to tie the AMT to inflation, meaning that every year Congress must enact a “patch” lest many middle-income families be faced with higher taxes. If that sounds like a debacle that’s because it is. Which makes President Obama’s call for a similar scheme on the corporate side of the code seem all the more ludicrous. We need to be simplifying not complicating. Apparently President Obama has never taken a look at our annual tax complexity study, which can be found HERE. 0 Comments | Post a Comment | Sign up for NTU Action Alerts
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