In one tiny effort to apply a tourniquet to stem the nation’s gusher of red ink, the administration targeted Ireland’s lower corporate tax structure in the effort to get American companies to keep jobs and business on this side of the Atlantic.
“Part of these overseas tax breaks were targeted because of Ireland and their lower taxes,” said one U.S. official who wished to remain anonymous as, on budget day, he rushed across town from one press conference to another.
Last Spring, there was a large trans-Atlantic lobbying effort in opposition to the Obama administration’s previous proposal to alter the tax deferral process that allowed companies with subsidiaries in countries like Ireland with a lower corporate tax rate avoid the higher U.S. corporate tax structure.
The lobbying appears to have paid off, at least for now. The deferral language in this year’s budget only targets limiting tax deductions on the interest payments a company makes on loans taken out for investment overseas.
Language in the budget made explicitly with Ireland in mind includes: “The American corporate tax code is riddled with inefficiencies and loopholes, including the fact that it allows companies to indefinitely defer the payment of U.S. taxes on foreign income while immediately benefiting from the tax deductions associated with these activities.”
The Obama administration is also now pledging to close the tax loophole that “allows many companies to take advantage of transfer pricing to shift income earned in the United States to lower-tax countries.”
Such lower-tax countries include Ireland.
The Republican-leaning Americans for Tax Reform noted that the Obama administration’s efforts to close the loopholes for multinational corporations doing business in the U.S. and Ireland could ultimately lead to perhaps more jobs for Ireland and less for American workers.
A cursory analysis by ATR after the Obama budget was released stated: “There’s no reason that an American company with an Irish subsidiary cannot become an Irish company with an American subsidiary – and take the American jobs with them to Ireland. America has a 39 percent ‘all-in’ corporate rate. Ireland’s is 12.5 percent.”
“That’s not what we want to happen, obviously,” said ATR Tax Policy Director, Ryan Ellis, in an interview with the Echo.
“We need tax reform where a company pays taxes where the income is earned,” said Ellis.
Ellis admitted that some multi-national companies use the current hodge-podge of U.S. tax rules to avoid paying taxes, but he maintained that, currently, the U.S. is expecting companies to pay taxes both where they earn income, and when income is repatriated to U.S. based corporations.
“Eventually, if Congress enacts these programs, companies will take themselves and their jobs overseas,” he said.
That’s a big If.
Last year, Congress enacted little legislation closing loopholes for multi-national corporations as outlined in earlier proposals by the Obama administration.
This year, however, with the economy still burdened with high unemployment and members of Congress facing re-election, a little protectionist positioning may be more palatable.
However, if recent history is a guide, Capitol Hill is highly reticent when it comes to turning political rhetoric into actual reform.