11.25.2008

OBAMA AND CONGRESS TACKLE THE ECONOMY

Here’s a nice article from last week’s Business Week that lasers in on two of my nervousnesses about an Obama administration and a Democratic Congress: ”Time to Forge a Compromise.” US companies can make money in two places: inside the US or outside the US. Inside the US, the corporate tax rate is 35 percent, second only to sluggard Japan. A generation or even a decade ago, this sort of uncompetitiveness didn’t matter as much, since non-US firms hadn’t evolved into the world-beaters they are now. It’s clear the US no longer has a monopoly on best-in-class processes, products, or brands. Tax policy needs to reflect the need to take off the shackle of this burdensome domestic tax rate.

Outside the US, Dems are calling for an end to the deferral of taxing profits until the foreign subsidiary actually transfers the money back home. They say this practice encourages companies to “offshore” jobs. But forcing companies to pay US tax on income while it’s still parked abroad would cripple US companies in non-US markets where their rivals pay far lower (or, in some cases, no) taxes. And with most US companies’ growth coming from markets outside the US, this is a recipe for disaster.

So what will Obama and Congress actually do? Who knows, although it’s incumbent on us to remember that we can punish our elected representatives at the ballot box in two years. What the CEOs and I think Obama and Congress should do is twofold: 1) lower corporate taxes but close loopholes, and 2) invest in domestic infrastructure, but hold projects to a rigorous cost-benefit assessment to weed out “Bridge to Nowhere” pork.

And, stepping outside of public policy and into popular politics for a minute, “business” and “profit” need to stop being dirty words. And Dems need to wake up to the new global realities of business. Prattling on about the evil of “offshoring” jobs is jingoistic, primitive, and counter-productive; the more we penalize US companies for being more plugged in to the global supply chain of brains, bits, and bytes, the more our economy will drag, the more jobs we’ll lose at home, and the more poorer countries around the world will suffer.
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