The Obama administration has fired a significant shot at multinational companies by calling for an end to a corporate tax break known as tax deferral. It sounds like mind-numbing mumbo jumbo to the many non-tax lawyers out there, but tax deferral is what makes many American companies more competitive with companies from other nations.
Here is how it works: An American company that makes profits in, say, France can keep that profit parked overseas so that it doesn’t have to pay American corporate taxes. That may sound unfair to people who hate the world of globalization, but to the overall health of American companies, this tax provision is essential.
You would think that an American president would want to keep American-owned multinational companies healthy. After all, big companies produce most of the products used in this country. They provide most of the healthcare. They provide most of the economic stability. And when they compete internationally, they sell American products to the world’s consumers, providing jobs to American workers.
But the Obama administration has taken the same approach to the big corporate giants that any self-respecting left-winger would take: They are evil, greedy, all-powerful, irresponsible, unaccountable and just plain bad. The labor movement hates the big corporations, because they know that when labor gets too expensive in the U.S., big corporations can move their manufacturing plants elsewhere.
It is tempting to say that the only reason the Obama administration is pushing for closing this corporate tax break is the money. After all, a lot of revenue can be raised by sharply increasing taxes on these corporations. And the president has to pay for his new spending proposals somehow.
But I believe that the president has a bigger agenda on his mind. He is trying to reverse the globalization process, the idea that a free flow of capital can move between countries, where investors can look for the best opportunities to invest, where free trade agreements allow trade to proceed with minimal government interference, and where the most productive get the most profits.
The president has already signaled that he will not support further free trade agreements. While he backtracked on a campaign promise to reopen NAFTA, he made his antipathy to that trade agreement well-known. Under his presidency, global trade has already shrunk to the lowest level in decades. And he has called for more direct oversight of the worldwide financial system, with the government dictating terms to banks on when they can or can’t repay government bailout funds.
The president simply doesn’t trust the globalization process, and in that, he is joined by a solid majority of the American people. But international trade is the true engine of our economic growth. When the Indians and the Chinese buy our products, it creates more jobs here in America. Having the government more directly involved leads to a greater chance of political shenanigans and can hurt the creativity and investment that leads to job creation.
To a statist like Obama, the free flow of money and ideas is a threat to the political order. It threatens the power of Big Labor. It diminishes the power of the state. It may seem politically popular, but the long-term effect is bad for jobs and for economic growth.
By putting a huge new tax on American multinational companies, what the president is announcing is a new war on globalization. He may think he has read the politics of this very well, but at the end of the day, you can’t stop globalization any more than you can stop the globe from spinning on its axis. At the end of the day, who will actually pay for Mr. Obama’s war on the American multinational company? Ironically, it will be the American people, who will be forced to pay higher prices for American products, and who will be forced to compete for fewer jobs.
The old saying goes: When you aim to soak the rich, it is the middle class that gets wet. When Mr. Obama takes aim at successful American companies, he will be hitting the American consumer the hardest.
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