The Danger of Closing Tax Loopholes

When you have a U.S. tax code that is over 60,000 pages long, you know you've got an "extremely tinkered with" tax system in this country. The fact is that the tax code is the favorite toy for Washington politicians to play with to garner votes. For a century or more, tax loopholes have been created to help farmers, steel companies, minority businesses, etc. For decades, businesses have looked at the tax codes and have developed their operational plans by taking advantage of those Democrat/Republican inserted loopholes with the intention of keeping their tax burden to a minimum and allowing their companies to grow and become both profitable and competitive. In many cases, those tax loopholes helped create jobs.

Now, Mr. Obama wants to totally overturn this apple cart by closing those loopholes that he feels are hurting tax revenues and causing job loss. (See Full Story). Supposedly, he plans to go after those companies who are parking profits overseas in order to avoid paying taxes in the U.S. Secondly, he plans to begin taxing companies for their overseas profits; despite their having already paid taxes in the country where those profits were made. He seems to think by double-taxing companies, it will force them to rethink moving any operations and jobs overseas. I'm also sure he thinks companies might even move their overseas operations back to this county. This is an extremely flawed assumption.

First, let me say, it was high taxes, high labor costs, and the resulting lack of competitiveness that drove many of those company's manufacturing operations overseas in the first place. Now, by punishing them even further, with additional taxes, they might well be finally forced to take the last big step and completely move their corporate operations and manufacturing overseas; no longer being an American company. In doing so, they would avoid all those double U.S. taxes; now some of the highest in the world and going even higher. For a company like GM, Exxon, Kodak, Microsoft, and IBM, this could be a substantial drop in tax expenses. At the same time, those tax revenues that Obama thought he would be gaining would be completely gone; contributing to the expansion of the deficit. Similarly, all those American jobs and the resulting taxes they would have paid will be gone.

Secondly, this plan of Obama's will be inflationary. When a company prices it's products, it takes into consideration all the costs involved in producing that product. Then, they assume some level of profit and the product is finally priced. If the pricing is competitive, they will so ahead and manufacture and sell the product.

What Obama doesn't seem to understand is that taxes are just another cost of doing business. If taxes are raised, the price of products has to be raised in order to achieve a profit. If the costs are too high, due to taxes, the product will be either taken off the market or the manufacturer will produce it overseas to remain competitive. But, with Obama's double tax, the incentive to produce that product overseas has been eliminated. Liberals would applaud this as a good thing. But, at the very least, Americans will pay higher prices for those things that cannot be produced overseas. Worst case, some aspects of American manufacturing could be shut down completely for non-competitive pricing problems. This would mean the loss of jobs in this country.

Any way you shake it, Obama's overseas tax plan is all wrong. It will serious hurt American companies so that he can pay for all these big spending plans he has. This is insane and it, along with his other big tax plans, will cripple our economy over the long haul. More than that, we could lose some of our largest companies as they decide to move their operations out of America.