NEOAVATARA

The Obama Administration today announced plans to tighten tax rules on corporations in hopes of decreasing off shore tax havens.

Among them, reforming the “deferral” rule that lets U.S.-based multinationals take deductions on their expenses supporting overseas operations but defer paying income tax on the profits they make from their overseas operations. They only need to pay U.S. income tax on those profits if and when they bring that money back to the United States.  The administration proposes that the companies must also defer taking their deductions until their overseas profits are brought back to the country. It estimates the change would raise $60.1 billion in revenue over 10 years.  It also proposes to offer a $74.5 billion tax cut over 10 years to companies by making permanent the research and experimentation credit given to companies that do their research and development in the United States.  The administration also wants to make it harder for companies to “abuse” the foreign tax credit. Currently companies may claim a credit against their U.S. income taxes for taxes they paid to another country. Amending that rule would raise an estimated $43 billion over 10 years, according to the administration.

Some of these rules, such as the deferral rule, have needed to be revised for a long time, considering they give benefits to companies that move business off shore.

That said, these kind of regulatory changes are central to the concept of ‘unintended consequences’.  The U.S. already has the second highest corporate tax rate in the developed world, and one of the few reasons that corporations stay here is because of some of the tax write-offs.   The White House predicts that they can raise $200 Billion a year by closing these loopholes, which is all well and good, except that for all practical purposes this is a massive tax increases on business during a recession.

The irony is that many tech comapanies, who use many off shore subsidiaries, are most angry about this…but they were also among the strongest business supporters of the Obama Administration.  Too bad.

So will this tightening promote or deter jobs from coming back to the U.S?  That is up for debate.  Will these corporations simply move off shore for cheaper tax codes?  Quite possible.  Democrats must look at both sides if they their intention is to create jobs here at home.

UPDATE:  My minicrush on Erin Burnett on Morning Joe yesterday just got a little bigger, because she stated that people have an obligation to pay as little taxes as legally possible…