So Much for An Olive Branch – Obama’s Budget Reveals More Taxes on Businesses

Anti-business Obama is back in business.

There for a while it looked like President Obama was actually going to make friends with America’s businesses. In December he met a group of 20 chief executives, the latest in a series of meetings designed to thaw the icy relations between the White House and business leaders.  At the end of the meetings Obama said, “I feel very confidence we made some good progress.” CEOs seemed similarly pleased with the results, “At the end of the day the idea is how business and the White House work hand-in-hand together to create more growth,” said Robert Wolf, chief executive of UBS Group.

President Obama even used his State of the Union to cozy up to business leaders and explain the government’s role in the job creation process. “The true engine of job creation in this country will always be America’s businesses. But government can create the conditions necessary for businesses to expand and hire more workers,” Obama said .

Carrying that momentum, Obama gave a speech at the U.S Chamber of Commerce in February in “an attempt to mend strained relations between his administration and the business community.” He said , “I’m here today because I’m convinced we can work together. . . If we can harness your potential and the potential of the people all across our country, there will be no stopping us.”

And then came yesterday. All that talk about working together, about creating conditions for businesses to thrive, and about competing in a global economy got crushed beneath 209 pages of Obama’s budget.

Obama did his best to hide the anti-business nature of his budget. There’s an entire section entitled “Competing and Winning in the World Economy,” for goodness sakes. But when you dig into exactly what Obama has planned, you see that it has very little to do with allowing business to flourish and a lot to do with letting government grow.

His plan has three pillars : “an educated and skilled workforce; cutting edge research into the innovations that will power the industries of tomorrow; and a modern, robust infrastructure that can support a growing, high tech economy.”

All that stuff is well and good, but it doesn’t mean jack if you can’t keep companies on our shores in an increasingly globalized economy. Sure companies like educated employees, research and development tax credits, and solid infrastructure, but the real language they speak is money. Increasingly, these perks that Obama is doubling-down on are failing to compete with the more favorable tax jurisdictions overseas.

Obama’s budget makes our tax burden on businesses even heavier.

The first big hit is a $129 billion tax hike on overseas profits of companies. Under the current system, American multinational corporations are doubled taxed. That is, they are taxed in the nation where they make the profits and then taxed by the United States on the same profits. Of course, the United States makes up for this by providing companies with a tax credit for whatever taxes they paid in the other nation. To compensate for the competitive disadvantage this creates Congress traditionally allowed businesses to only pay taxes when they repatriated their earning back to the US.

Rather than get rid of this convoluted system altogether in favor of a territorial tax system, something that we have advocated for , Obama has decided to make things worse. His plan is to make companies pay taxes on their foreign earnings whether they repatriate them or not. This will make the US even more of an anti-business jurisdiction by creating a more punitive tax code. Moreover, it doesn’t solve the problem, rather it simply creates an enormous incentive for businesses to simply form elsewhere.

The second job killer is Obama’s assault on investment. Obama’s budget proposes to bring back pre-2001 tax rates on capital gains. The problem is best explained by Glenn Hubbard, Dean of the Columbia Business School and former chair of the Council of Economic Advisers:

Think of the economy as a pie split among workers, savers and the government, with the government’s slice fixed. The savers’ slice will equal the after-tax return on each unit of the capital stock, and what’s left goes to workers as after-tax wages. The fairness advocates in effect claim that low tax rates on dividends and capital gains increase the share of the pie that goes to high-income savers. But the low tax rates increase the absolute size of the workers’ slice by making the entire pie bigger. That’s because low tax rates encourage capital accumulation, productivity and wage growth.

By taxing capital, we are in effect discouraging investment in the economy. While that might not lead to immediate problems it could have potentially disastrous effects on our long-term ability to create wealth and jobs.

So what happened to the President Obama that was a friend of business? The truth is, he was never there. As we’ve come to learn through promise after promise, Obama’s words are often nothing more than a political ploy to appear responsive to the pressures of the day. If the public starts to think he’s anti-business he goes and speaks jovially to the Chamber of Commerce. If he comes off as a big-spender, he talks sternly about how he will focus on the deficit. If the talk centers around how he doesn’t listen to Republican ideas, he’ll hold some fancy conference in the Blair House.

He’s a chameleon, and a damn good one. So forget the talk of Obama extending an olive branch to business. His budget reveals his true colors, and he is, as he always was, a tax-and-spend liberal.

by Brandon Greife, Political Director of the College Republican National Committee

Crossposted: http://speakout.crnc.org/blog/2011/02/15/so-much-for-an-olive-branch-obamas-budget-reveals-more-taxes-on-businesses/