In an article for Forbes, I explain why the President’s new proposal to increase the tax penalty on American companies competing in global markets is spectacularly misguided. Here’s the key passage:
If deferral is eliminated, that may prevent an American company from taking advantage of a profitable opportunity to build a factory in some place like Ireland. But U.S. tax law does not constrain foreign companies operating in foreign countries. So there would be nothing to prevent a Dutch company from taking advantage of that profitable Irish opportunity. And since a foreign-based company can ship goods into the U.S. market under the same rules as a U.S. company’s foreign subsidiary, worldwide taxation does not insulate America from overseas competition. It simply means that foreign companies get the business and earn the profits. If deferral is curtailed or eliminated, several bad things will happen. American-based companies will become less competitive since they will face a higher tax rate. Those U.S. companies also will lose market share around the world since foreign companies will have an even bigger tax advantage. America will have fewer exports, since a big chunk of our exports are the goods that American companies sell to their foreign subsidiaries. And American workers will have fewer jobs because of the reduction in exports.