Business Cool On Obama's 2011 Budget

by Mike Godfrey, Tax-News.com, Washington

04 February 2010

While President Barack Obama's proposals to cut tax and create additional investment incentives for small business have been welcomed, representatives of America's largest companies complain that other aspects of the 2011 budget proposals will undermine the President's goals of accelerating the US economic recovery by impeding their ability to invest internationally.

Commenting on Obama's 2011 budget plan, John J. Castellani, President of the Business Roundtable, an association of chief executive officers of leading US companies, warned that the President's proposals in the area of international taxation in particular would damage US competitiveness and make it "virtually impossible" for his target of doubling exports to be met.

“President Obama’s proposed budget undermines the goals he stated in last week’s State of the Union address," Castellani stated. “The President has argued that ‘the true engine of job creation in this country will always be America's businesses.’ We couldn’t agree more. But to create new and better-paying jobs, American companies must have the flexibility to compete both here and abroad – where 95% of the world’s consumers are."

Under proposals developed by the US Treasury Department, "excessive" profits shifted offshore using transfers of intangible assets would be taxable in the United States in an attempt to prevent firms from using transfer pricing strategies to reduce liability to US tax. Along with a related proposal to clarify the definition of intangible assets, this proposal would raise almost USD17bn over the budget window.

The proposed transfer pricing reforms are part of a broader package of international tax reforms that have been modified from last year's budget. The proposal to deny companies an immediate deduction for deferred expenses remains broadly similar however.

Under current law, businesses that borrow money and invest it overseas can claim the interest they pay as a business expense and take an immediate deduction on their US taxes. This, business argues, gives US companies a vital advantage in the global market place.

The 2011 budget also includes restrictions to discourage businesses and individuals to structure their affairs using offshore entities and accounts. The administration claims that the full package of international proposals would raise USD122bn over the budget window.

US Chamber Executive Vice President for Government Affairs R. Bruce Josten said that the budget proposals, if enacted in their current form, would "dramatically increase taxes in a weak economy, and undermine American job creation."

“This budget is a surefire way to slow economic growth, increase unemployment, and make US companies less competitive around the globe," Josten stated.

“The US Chamber stands ready to support many of the job-creating proposals outlined in the State of the Union Address," he continued. "However, we cannot support a budget that will undermine the nation’s overriding priority—creating jobs.”

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