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Tax deferral (Redux).

BACK IN AUGUST WE EDITORIALIZED about a proposal in President Obama's fiscal 2010 budget that would increase U.S. taxes on American companies' foreign operations.

Last week, the administration cried uncle and businesses won a reprieve as Obama backed away from the plan that would have raised some $210 billion from the multinational companies over a 10-year period.

The repeal or scaling back of the so-called corporate "tax deferral" law, a provision that allows multinational companies to defer U.S. taxes owed by subsidiaries operating in foreign countries until the income is sent back to the United States, would have had a big impact on several large Arkansas companies--Wal-Mart Stores Inc., Tyson Foods Inc., Baldor Electric Co. and Murphy Oil Corp.--which have sizeable operations overseas.

With deferral, foreign affiliates of U.S. companies pay the same rate of tax as their foreign-owned competitors while those earnings remain reinvested overseas. Most competitor nations have a territorial tax system, under which foreign earnings are never taxed.

Administration officials say the plan has set the idea aside for now, but may return to it as part of a broader tax overhaul sometime next year. Originally, Obama floated the idea as one way to raise more revenue.

U.S. businesses argued strongly that the deferral allows them to compete better around the world. They went to work, setting up a campaign to persuade the administration that his plan to "end tax breaks for companies that ship jobs overseas" could do more harm than good.

The tension continues between business and the Obama administration, which at times doesn't seem to have a clue about how business operates, but for now, business has made its point.

A report in June, commissioned by the Technology CEO Council, a coalition of chairmen and CEOs of information-technology companies, found that as many as 2.2 million American jobs could have been put at risk by the administration's proposal that would have made U.S. companies less competitive abroad and weakened their investments. Self-serving reports like that tend to bias toward the worst-case, but with the national unemployment rate dizzyingly close to 10 percent, this is not the time to risk the loss of any more jobs.

We said it in August, but it bears repeating: We live in a global economy. The government should not be discouraging American businesses from seeking opportunities around the world.
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Title Annotation:Editorial
Publication:Arkansas Business
Date:Oct 19, 2009
Words:397
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