Slate Magazine’s Christopher Beam writes in The Fariness Doctrine: The Best Argument Against Obama’s Tax Haven Plan,
The problem is, this hypothetical—the American company that starts a factory overseas and pays lower taxes there—is just that. Businesses generally do not open factories overseas to avoid taxes. They do it for cheap labor or government subsidies or advantageous shipping routes. Take India: The corporate income tax rate for foreign companies is 40 percent. The U.S. rate for domestic companies is 35 percent.
Why would an American company relocate to dodge U.S. taxes only to pay even higher ones in India?
Beam interviewed Adam Rosenzweig, a law professor at Washington University in St. Louis and Jack Blum of the Tax Justice Network:
“I tend to think people are driven to make business decisions based on business reasons,” says Rosenzweig. “Then they deal with tax reasons.” In addition, says [Blum], taxes aren’t even calculated as part of a company’s earnings.
“You’re taxed on what you earn,” he says. “And that is calculated after the profit of a company is figured out.”
Beam concludes,
So the entire scenario of the American company getting hurt by having to pay U.S. tax rates overseas is something of a red herring.
In other words, Obama’s proposed elimination of the current deferral on reinvested foreign earnings won’t force U.S. companies to bring their operations back home.
Related Post:
Does Deferral of Offshore Earnings Cost Americans Jobs? “No,” says Tax Policy Center
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