Obama's ignorance of business

Wall Street Journal Editorial:

...

Mr. Obama's proposal would designate certain companies as "patriot employers" and favor them over other, presumably not so patriotic, businesses.

The legislation takes four pages to define "patriotic" companies as those that: "pay at least 60 percent of each employee's health care premiums"; have a position of "neutrality in employee [union] organizing drives"; "maintain or increase the number of full-time workers in the United States relative to the number of full-time workers outside of the United States"; pay a salary to each employee "not less than an amount equal to the federal poverty level"; and provide a pension plan.

In other words, a patriotic employer is one which fulfills the fondest Big Labor agenda, regardless of the competitive implications. The proposal ignores the marketplace reality that businesses hire a work force they can afford to pay and still make money. Coercing companies into raising wages and benefits above market rates may only lead to fewer workers getting hired in the first place.

Under Mr. Obama's plan, "patriot employers" qualify for a 1% tax credit on their profits. To finance this tax break, American companies with subsidiaries abroad would have to pay the U.S. corporate tax on profits earned abroad, rather than the corporate tax of the host country where they are earned. Since the U.S. corporate tax rate is 35%, while most of the world has a lower rate, this amounts to a big tax increase on earnings owned abroad.

Put another way, U.S. companies would suddenly have to pay a higher tax rate than their Chinese, Japanese and European competitors. According to research by Peter Merrill, an international tax expert at PriceWaterhouseCoopers, this change would "raise the cost of capital of U.S. multinationals and cause them to lose market share to foreign rivals." Apparently Mr. Obama believes that by making U.S. companies less profitable and less competitive world-wide, they will somehow be able to create more jobs in America.

He has it backwards: The offshore activities of U.S. companies tend to increase rather than reduce domestic business. A 2005 National Bureau of Economic Research study by economists from Harvard and the University of Michigan found that more foreign investment by U.S. companies leads to greater domestic investment, and that U.S. firms' hiring of more offshore workers is positively, not negatively, associated with the number of American workers they hire. That's in part because often what is produced overseas by subsidiaries are component parts to final, higher-value-added products manufactured here.

...

Selling out to the same unions who have destroyed the domestic auto business with contracts that make them uncompetitive is no way to grow the economy. It is certainly not the kind of change we need. The guy who says he is opposed to the influence of lobbiest appears to be letting the union lobbies write legislation for him. Making American companies unprofitable is no way to improve wages.

Ultimately businesses do not pay taxes, they merely collect them from their customers. By forcing them to collect more from their customers to be profitable, they will have fewer customers, because foreign competitors will be given an advantage by the Obama plan.