Ireland Beware... Obamanomics Ahead

Pocono Joe

Well it was only a matter of time... today Obama proposed raising taxes on the overseas profits of U.S. companies, and to go after evaders who abuse offshore tax shelters.

Obama complained that existing law makes it possible to "pay lower taxes if you create a job in Bangalore, India, than if you create one in Buffalo, New York. "

Under his plan, companies would not be able to write off domestic expenses for generating profits abroad. The goal is to reduce the incentive for U.S. companies to base all or part of their operations in other countries.

And since John McCain touted Ireland and their low tax rate during the election, I fear you might be screwed. So if you live in Ireland and work for a US company, or a subsidiary of one, you better get your resume updated.

It will be a tough sell to get through congress, but it does show where the mind of the BO is heading.

bobbyjoe

Sounds like a good idea. For America that is,

kippy

I thought that this idea has been touted by various people in US government for the past 12-18 months or so?

Pocono Joe

kippy wrote: »

I thought that this idea has been touted by various people in US government for the past 12-18 months or so?

Yeahbut, there was never a supermajority before. With the defection of Arlen Specter, and when Al Franken is sworn in as a US Senator, Obama gets his supermajority, and can pretty much get passed almost anything he wants (except maybe for funding to move prisoners out of Gitmo :rolleyes:).

Meet our soon to be newest Senator... Al (no joke).

Overheal

Every time PJ makes a new thread, I ring a bell.

At the very least, an Angel gets it's wings.

Either way it seems like a good idea. But what we really ought to do is put heavy taxes on companies outsourcing their customer service to india. That'll learn em.

Sure the cost of doing business domestically is too high. Boeing is building its newest plant out in China if I have the country correct. Thats one of the last big manufacturers we have in the US.

I mean cry me a river, but we need to do something to encourage these business to keep their domestic components. Next thing you know Ford and Northrop will move out to Bangkok and the only thing the US will do is push products made in Other Countries through our thousands of Walmarts, Best Buys and Radio Shacks.

Manic Moran

I mean cry me a river, but we need to do something to encourage these business to keep their domestic components

They could always try lowering corporate taxes... It worked for Ireland.

NTM

Overheal

Yeah but thats no fun..

sink

What Obama is really doing is making it harder for US companies to compete in oversees markets, hurting America and potentially benefiting Ireland. This actually creates an opportunity for domestic companies to take market share from American multinationals. US multinationals are primarily here to provide services to the EU common market, just because American companies will now have to give kickbacks to Uncle Sam will not affect the demand for the services they provide, but it does create the opportunity for savy Irish entrepreneurs to provide the same services at a lower cost than American multi-nationals as we won't have to pay the US government for sitting on their ass. This policy really makes no economic sense for America and just seems cynically populist. I thought this was a stump speech election spinner and never thought Obama would be stupid enough to go through with it, I guess I was mistaken.

jank

Well PJ, what do you think? Do you think this is good for America?

Surely you want job creation in the states rather then out sourcing to india and china for the next 10 years....

Overheal

I guess that does fall back on the new adage, that its simply a matter of bringing the american worker back down to common sense. Our quality of life far outpaced our ability to afford it. That and the poor education. We;re too expensive and we're too stupid. Not a competitive workforce by any means.

The Mad Hatter

Manic Moran wrote: »

They could always try lowering corporate taxes... It worked for Ireland.

NTM

If that's a joke, it's not funny.

doolox

They do not have to stay in the U.S. The likes of Intel etc could simply move their HQ elsewhere and reorganise themselves to be "less American" in order to evade the taxes.
The current stock layout could be changed to be denominated in Euros or Sterling relatively easily and the big players could fit in easily in any country.
If squeezed hard enough they will move and redefine their Nationality and structure.

Trouser_Press

Yeah, it's a real shocker alright: President Obama proposing tax changes that will benefit his own country. Bizarre. Impeach him, I say.

Amalgam

This is just.. protectionism? What is to stop other countries with economic clout from reciprocating with similar measures?

A rickety path to walk down..

sink

Amalgam wrote: »

This is just.. protectionism? What is to stop other countries with economic clout from reciprocating with similar measures?

A rickety path to walk down..

It's protectionism in reverse. Protectionism usually entails tariffs on imported goods and services from foreign companies not taxing domestic companies for operating in foreign markets. Say they raise taxes on US companies for manufacturing in China, Chinese companies can still manufacture in China and sell to America at a huge cost advantage over American companies. The US can't afford place higher tariffs on Chinese imports as that will push up domestic inflation and force China to reciprocate cutting off US firms from the worlds fastest growing market. This is a bad economic move whatever way you look at it.

The Raven.

I mentioned this several times before, but people didn't want to hear it. There is an article in today's Irish Times.

US vows tougher oversease tax codes

President Barack Obama vowed today to overhaul tax policies that he said reward companies for shifting US jobs overseas and allow wealthy people to evade taxes using offshore accounts.

The White House estimated the plan would save $210 billion over the next decade. In one proposal businesses are poised to fight, Mr Obama would tighten tax-code provisions that allow firms to defer paying taxes on profits they make overseas as long as those earnings are plowed back into the foreign subsidiaries.

That portion of his plan has drawn opposition from big multinational firms such as Pfizer and Oracle. The president said he also would close loopholes and bolster enforcement to prevent tax avoidance by companies and individuals.

Any change to the US tax code on multinationals is likely to have significant implications for the Irish economy which relies heavily on foreign investment from the US.

"The steps I am announcing today will help us deal with some of the more egregious examples of what is wrong with our tax code," Mr Obama said at a joint announcement with Treasury Secretary Timothy Geithner.

"It is the downpayment on the larger tax reform we need to make our tax system simpler and fairer and more efficient for individuals and corporations."

The proposals must go through Congress. Several politicians, including US House of Representatives Ways and Means Chairman Charles Rangel, signaled support for Obama's proposals. But one crucial player, Senator Max Baucus, Democratic chairman of the Senate Finance Committee, called for more study of how US businesses would be affected.

Currently, US firms are allowed to defer paying taxes on profits earned overseas if they put those profits back into their foreign subsidiaries. Critics say those rules encourage businesses to bolster their foreign operations instead of creating jobs at home.

During his campaign last year, Obama promised to change those provisions.

In March 200 companies and trade groups like the US Chamber of Commerce sent congressional leaders a letter opposing changes to the "deferral" provision. The letter said the firms would not be on a level playing field with international rivals, many of which are not required to pay taxes at home on overseas entities.

Pfizer, Oracle, Microsoft Corp, Johnson & Johnson and General Electric were among the firms that signed the letter.

Under the Obama plan, companies would no longer be able to deduct expenses supporting their overseas operations until they pay taxes on their profits.

The plan also would end a practice by which some firms take big deductions against their taxes by inflating the amount of foreign taxes they have paid.

http://www.irishtimes.com/newspaper/breaking/2009/0504/breaking30.htm

The article continues further.

I don't know if it is good for America, but it certainly doesn't look good for Ireland. Please spare me the lectures of 'It's only fair that Obama looks after his own country etc'. I've heard it all before :rolleyes:!!

Koloman

Pocono Joe wrote: »

Well it was only a matter of time... today Obama proposed raising taxes on the overseas profits of U.S. companies, and to go after evaders who abuse offshore tax shelters.

Obama complained that existing law makes it possible to "pay lower taxes if you create a job in Bangalore, India, than if you create one in Buffalo, New York. "

Under his plan, companies would not be able to write off domestic expenses for generating profits abroad. The goal is to reduce the incentive for U.S. companies to base all or part of their operations in other countries.

And since John McCain touted Ireland and their low tax rate during the election, I fear you might be screwed. So if you live in Ireland and work for a US company, or a subsidiary of one, you better get your resume updated.

It will be a tough sell to get through congress, but it does show where the mind of the BO is heading.

I don't think this will happen. There will be too much opposition to it both from business and from most politicians.

Don't forget that President Kennedy tried to do this as far back as 1961! That came to nothing and other attempts over the years have failed to gather momentum.

It keeps cropping up in times of recession and when the recovery comes it will be (hopefully) forgotten about.

Trouser_Press

The Raven. wrote: »

I don't know if it is good for America, but it certainly doesn't look good for Ireland. Please spare me the lectures of 'It's only fair that Obama looks after his own country etc'. I've heard it all before :rolleyes:!!

Hear, hear! As the President of Ireland, one who lives at the tax-payers' expense in Aras an Uachtarain, Mr Obama's first priority, clearly, should be to the Dell workers in Kildare.

Oh......wait.

The Corinthian

Don't worry, we can fall back on all the indigenous industry and enterprise that we invested in and developed during the Celtic Tiger years.

Oh......wait.

Pocono Joe

Overheal wrote: »

Every time PJ makes a new thread, I ring a bell.

At the very least, an Angel gets it's wings.

I understand Clarence Oddbody was also a Conservative.

jank wrote: »

Well PJ, what do you think? Do you think this is good for America?

Surely you want job creation in the states rather then out sourcing to india and china for the next 10 years....

I believe in a free market system. As long as a government does not subsidize an entity in order to make their cost’s artificially low, global competition is good.

I believe there exists a economic self-balancing mechanism. I look at it this way... If we ship all goods and services overseas, who is there to purchase them - if consumers have lost their jobs to oversea entities? Until the consumers demand American-made goods, and are willing to pay the price for them, we will continue to use and demand less expensive foreign-made product. Consumer demand, not government mandates, should drive the free market system (how Conservative of me).

In addition, this plan under Obama will hinder our ability to compete overseas (Duh).

But I fear it will be a tougher fight than we have ever seen before. Rep. Charles Rangel, chairman of the tax-writing House Ways and Means Committee, just stated "For too long, our tax laws have rewarded companies that invest and keep their money overseas and turned a blind eye to the use of tax havens by the wealthy." Also, I just read that Obama said the government is hiring nearly 800 new IRS agents to enforce the tax code.

And if this plan of Obama’s is defeated, you all can thank the Republicans, and a handful of reasonable Democrats. (But I won’t hold my breath for the Thank You.)

Black Swan

Pocono Joe wrote: »

So if you live in Ireland and work for a US company, or a subsidiary of one, you better get your resume updated.

This is a gross oversimplification of a much larger, complex issue in terms of the USA accessing and competing in the EU markets. You are missing one very large piece of the puzzle in your argument in terms of US corporations leaving Ireland? There are huge advantages for US corporations to manufacture in an EU country like Ireland, in terms of the protocols for the free flow of goods and services among member EU nations.

Hobbes

I recall hearing about this a few months back on the loony conspiracy sites (left ones in case your wondering). They mentioned that the massive layoffs in America were temporary so the companies could hire them back and get the bonus for creating new US jobs (which they got rid of eariler).

With regards to this issue. Corinthian hits the nail on the head. If it wasn't the US then it will be another country in a few years time (poland for example).

Trouser_Press

The Corinthian wrote: »

Don't worry, we can fall back on all the indigenous industry and enterprise that we invested in and developed during the Celtic Tiger years.

Oh......wait.

You didn't get it, did you?

The Corinthian

Trouser_Press wrote: »

You didn't get it, did you?

I did.

LostinKildare

Pocono Joe wrote: »

Meet our soon to be newest Senator... Al (no joke).

No, not a joke -- a smear by the Ohio GOP. It's a Photoshopped fake.

Ironically, the earlier version of this photo depicts right-wing creep (and rumored diaper fetishist) David Vitter (R-La) -- Google "Vitter + diaper"

http://thinkprogress.org/2006/10/26/franken-ohio-photo/

Overheal

http://online.wsj.com/article/BT-CO-20090505-714019.html

This article has a couple interesting statistics.

In a briefing note, the White House cited Ireland as one of three small countries, alongside the Netherlands and Bermuda, as accounting for about one-third of all foreign profits by U.S. multinationals in 2003.

...

Around 500 U.S. multinationals pay about EUR2.5 billion in tax yearly, and about 2% of the workforce directly or 100,000 people directly, more than the population of Bermuda, he said. Ireland's population is 4.1 million.

U.S. firms export around EUR83 billion of products and services from Ireland and contribute about EUR13 billion in expenditure to the Irish economy in terms of payrolls and goods and services employed in their operations, Wall said.

...

IDA Ireland said the country faces a period of uncertainty over the next 12 to 18 months as details of the U.S. tax proposals emerge.

IDA Chief Executive Barry O'Leary told Dow Jones Newswires that U.S. multinationals in Ireland, which has a 12.5% corporate tax rate, have more substance than "holding companies" in the Netherlands or "tax havens" like Bermuda.

O'Leary also said Obama's proposals are unlikely to involve a blanket ban on U.S. companies' ability to defer paying U.S. tax on profits earned in Ireland, but will focus more on measures like tax deductions for expenses.

He also pointed out that Ireland was not categorized as a "tax haven" by the Organization of Economic and Cooperation and Development. Likewise, the Dutch Ministry of Finance said the Netherlands was not known as a tax haven.

Despite its relatively low corporate tax rate, Ireland faces a loss of competitiveness and foreign investment, even without the latest blow from the U.S., as companies seek out lower cost economies in Eastern Europe and Asia.

Dell Inc. said earlier this year it was moving its Irish manufacturing operations to Poland by early 2010, a cost-cutting measure that would result in the loss of 1,900 Irish jobs - about half of the computer maker's Irish work force.

...

So correct me if I'm wrong but doesn't that mean the White House is aware that Ireland has a symbiotic relationship at the moment with the US (I mean I'm sure they talked about this back 6/7 weeks ago, Paddy's Day) And that these proposed tax reforms (while not to take effect anytime in the immediate future) are not meant to target the business being conducted in Ireland?

Also, that even if the announcement wasn't made, that Ireland would still be fcuked, a la China et Poland.

Again, this has all been more spin from the Nobama crowd it would seem.

hussey

Ireland is the European base headquarters for a significant number of companies, yes they came here when it was low tax, but surely having a european base wouldn't totally be classed as offshore?

What I mean is global companies need bases all around the world, and wouldn't be punished etc ... IBM, Microsoft etc

Overheal

I dont think they mean to be going after the legitimate intents of business overseas - only making it harder for those overseas business to evade paying domestic taxes. Again, correct me if I'm wrong

Jim_Are_Great

I think the disincentivisation ramifications of this plan are overstated anyway. Multinationals don't set up overseas purely based on tax. Sure, it's a factor, but the fact is that these are business decisions first and tax decisions second. Cheap labour and other overheads are more pressing concerns to a business setting up a manufacturing component overseas. India - where a lot of US and European MNs have set up - has a 40% corporate tax, whereas the US has 35%. If this was really about low tax-seeking, why would they establish in a jurisdiction with a higher tax?

Also, the business elements of the plan are not as controversial as cracked up. If US companies are allowed to tax-wrangle overseas, it's unfair on US companies who establish is the US, contributing to the exchequer and generating employment. If the opposite is allowed to be the case, it's disadvantageous to US companies who have to compete with similar non-US companies, decreasing international competitiveness. Both sides have advantages and disadvantages, and there's not really a left-right divide on an issue like this. Though I imagine the strong labour lobby had a lot of input into this.

And the existence of a supermajority does not, I think, mean that this bill will automatically succeed. Goodness knows how many congressmen and senators, of all alignments, are plotting their congress and presidential campaigns. They want to establish their pro-business credentials and their ability to stand up to party leadership. Self-service might just save the day.

Jim_Are_Great

http://www.irishtimes.com/newspaper/frontpage/2009/0528/1224247599404.html?digest=1

lyda

Pocono Joe wrote: »

And since John McCain touted Ireland and their low tax rate during the election, I fear you might be screwed. So if you live in Ireland and work for a US company, or a subsidiary of one, you better get your resume updated.

I am a US citizen. I work for a US multi-national. I knew full-well that a President Obama would start to encourage US companies to create US jobs - and part of that would include penalizing them for creating jobs overseas.

I happily cast my ballot for Barack Obama and I was proud to do it then. I am even more happy with my vote now and I hope to do it again in 2012.

As it happens the US multi-national I work for has an office here for very legitimate reasons. There are companies that are "overseas" where they have minimal staff and it's really US citizens/residents doing all the work - it's just the profits aren't seen as US based. There are also companies that have staff overseas that do all their work with American customers. Those jobs could just as easily be done in America. And in my mind should be.

The flip side is what Ireland should do (and should have done) - encourage and invest in local companies. The US government and state governments make substantial investments in small businesses and startups. Providing access to loans, helping with various aspects of starting a business, tax breaks, etc. Things the Irish government does not do to the same level.

As I am also an Irish citizen and have an interest in where my tax Euros go, I hope to see more of that in the future. Depending on multi-nationals by playing silly games with low corporate tax rates is a long-term losing proposition.