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Microsoft Issues Jobs Threat To Obama Over Tax Plans,
by Mike Godfrey, Tax-News.com, Washington
Tuesday, June 09, 2009
Microsoft CEO Steve Ballmer has warned that he will move part of the software
giant’s operations overseas if President Obama succeeds in his plan to
change the corporate income tax deferral rules.
Ballmer told Bloomberg News that the company would be “better off taking
lots of people and moving them out of the US” if the proposed international
tax reforms are put into place, noting that US taxes already make it “more
expensive” to employ workers in the US.
Under current tax law, multinationals can immediately deduct foreign investment
costs against US taxes, but defer paying tax on the overseas profits that result
until they are repatriated to the United States. This, according to Obama, gives
companies an incentive to invest in foreign countries and, to coin a favourite
phrase of his, “ship jobs overseas.”
Under a plan released by the Treasury last month, the deferral rules would
be changed so that – with the exception of research and experimentation
expenses – companies cannot receive deductions on their US tax returns
supporting their offshore investments until they pay taxes on their offshore
profits. This provision would take effect in 2011, and the Treasury expects
that an additional USD60.1bn in tax revenues would be raised from 2011 to 2019
as a result.
However, as Ballmer’s threat highlights, these reforms may actually
achieve the opposite of what Obama ultimately intends – increasing domestic
investment – because, facing the prospect of double taxation, some companies
could decide that it would be more cost effective for them to simply stay offshore.
“This plan will reduce the ability of US companies to compete in foreign
markets, which will not only reduce jobs, but will also cripple economic growth
here in the United States,” said John J. Castellani, President of the
Business Roundtable, in response to the Treasury’s announcement. “It
couldn’t come at a worse time.”
“The United States is the only major industrialized country which double
taxes the overseas earnings of our companies,” US Chamber of Commerce
Chief Economist Dr. Marty Regalia has said. "Since other countries don’t
subject their companies to double taxation, US companies need deferral to stay
competitive in the global marketplace.”
Business groups have expressed frustration that the Obama administration is
missing an opportunity to address US competitiveness and boost investment by
cutting the rate of US corporate tax, which, at 35%, remains the second-highest
amongst the advanced nations, behind Japan.
Contrary, perhaps, to public perception, large corporations in America also
contribute substantial sums in other taxes, in addition to corporate tax. According
to PricewaterhouseCooper's Total Tax Survey, released earlier this year, the
40 companies participating in the survey remitted USD94bn in taxes in the year
to March 31, 2008, of which USD28.5bn were federal and state corporate income
taxes. These companies employed 1.6 million US workers and paid USD122bn in
wages and salaries. US corporations also serve as unofficial tax collectors
for the government, collecting and remitting USD169 in sales, excise, withholding
and other customer and employee taxes for every USD100 of corporate income tax
payments.
.
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