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Tuesday, April 20, 2004

Going Positive: Admirable Qualities of John Kerry (Part 3)

In the same tax-day issue of Slate is an excellent article praising Kerry's anti-outsourcing corporate tax reform. Kerry proposes to equalize taxes on income corporations earn domestically and abroad:

Today in America if a company is trying to choose between locating a factory in Michigan or Malaysia, our tax code has a feature called "deferral" that provides major tax savings if they locate abroad...

A company with $10 million in profits in Michigan will pay taxes at the standard corporate tax rate; but if that company moves to Malaysia and makes that same $10 million in profits, they can avoid paying US taxes -- perhaps forever -- as long as they keep the money overseas. They have a special tax incentive to send jobs overseas that may have little or nothing to do with normal market or economic forces.

The reform I'm proposing today is based on a simple principle: Money made by American businesses overseas should be taxed at the same rate as money made by businesses here at home.

This seems to me, and to Timothy Noah, author of the Slate article, like a pretty straightforward good government initiative: there's no reason to give special tax breaks to companies that locate operations abroad. Apparently, the plan was put together by Gene Sperling, who was part of Clinton's economic team. So once again, we have Kerry proposing something sensible, and working with smart advisors. Also, despite Kerry's overheated rhetoric about corporate "Benedict Arnolds," what he is proposing in response to fears of foreign competition is not at all protectionist.

According to Kerry, equalizing taxes on overseas profits would raise about $12 billion a year, which he would spend on lowering the corporate tax rate, and giving tax breaks to corporations that provide health insurance or create jobs. Now one might say that $12 billion isn't a lot of money in a $2,000 billion federal budget, which is true, but, as they say, "a billion here, a billion there, and soon you're talking real money."

Kerry's plan has also been criticized for not doing much about outsourcing, since American companies have many other reasons for locating overseas besides tax subsidies. Oddly, these criticisms come from the right. The critics are probably correct that Kerry's plan will have only a minor effect on outsourcing. For one thing, much of the corporate tax avoidance it's aimed at involves only paper shifts of corporate activity: setting up mail-drop corporate headquarters in tax havens like the Cayman Islands. But none of the (mostly silly) complaints about outsourcing I've heard propose doing anything about it, even doing something foolish. Kerry, on the other hand, is proposing a (modest) step in the right direction.

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