Tuesday, May 5, 2009

Obama's War On Business & The Constitution

Winston Churchill once noted that it is impossible for a country to tax itself into prosperity. Someone needs to remind Obama of that, and along the way explain to him that his proposal to change the burden of proof in tax haven cases is quite likely a violation of the Constitution's due process clause. In America, we don't presume people guilty until they prove themselves innocent. Where did this guy teach Constitutional Law anyway - Moscow University?

Our tax rates on businesses are already ridiculously high. Indeed, our corporate tax rates at 35% are the second highest in the Western world. If you want to drive businesses offshore, that's they way to do it. And if you want to make matters worse, just become more draconian, closing loopholes on this confiscatory tax while leaving the rate unchanged. You can not soak businesses for billions of extra tax dollars without reducing their output and/or driving up their costs - costs which are passed onto to we the consumer in the form of an indirect tax. Yet that is of no matter. Obama today announced that he intended to do precisely that. This from the NYT:

President Obama on Monday called for curbing offshore tax havens and corporate tax breaks to collect billions of dollars more from multinational companies and wealthy individuals.

The move would appeal to growing populist anger among taxpayers but is likely to open an epic battle with some major powers in American commerce.

With the proposals he outlined at the White House, the president sought to make good on his campaign promise to end tax breaks “for companies that ship jobs overseas.”

He estimated the changes would raise $210 billion over the next decade and help offset tax cuts for middle-income taxpayers as well as a permanent tax credit for companies’ research and development costs.

The changes, if enacted, would take effect in 2011, when administration officials presume the economy will have recovered from the recession. But business groups were quick to condemn the White House for proposing tax increases amid a global downturn.

“This plan will reduce the ability of U.S. companies to compete in foreign markets, which will not only reduce jobs, but will also cripple economic growth here in the United States. It couldn’t come at a worse time,” said John J. Castellani, president of the Business Roundtable, a trade association of major businesses.

The proposals would especially hit pharmaceutical, technology, financial and consumer goods companies — among them Goldman Sachs, Microsoft, Pfizer and Procter & Gamble — that have major overseas operations or subsidiaries in tax havens like the Cayman Islands.

. . . At issue are tax laws that were originally intended to prevent multinational corporations from being double-taxed, by the United States and by foreign countries, by allowing companies to defer reporting their foreign income to the Internal Revenue Service and to get tax credits in the United States for foreign taxes paid.

Read the entire article. And you have to love this assessment that they include a little later in the article:

Economists are divided over whether higher taxes would give corporations incentives to move jobs overseas or impair economic growth at home.

That sounds like a comforting debate. Minus six of one or minus a half dozen of the other, eh? As they say, socialism will give us all a chance to share the pain equally.

Update: This, from Hot Air, is a clearer explanation of the consequences of Obama's proposals:

Obama has to find revenue to counter the bleeding. This attempt will backfire in a couple of ways. First, as ATR noted, companies with the wherewithal will simply move overseas to take advantage of better tax environments, limiting their exposure to Obama’s tax-hiking fever and protecting their revenues. He can try to make this as painful as possible, but in the end businesses will act in their own interest. Obama seems to either not realize this or not care much whether companies flee the US, nor does he appear to have learned the value of dynamic tax analysis.

For the rest, the high American corporate tax rate will cause them to invest less in their own businesses, killing expansion and development. It will curtail employment, and in the end, the businesses won’t pay most of the tax anyway. They will do what all businesses do — pass their internal costs to their customers in the form of higher prices. Those higher prices will depress demand, as well as creating inflation on top of stagnation. This will not only cripple the American economy in a similar manner to what we saw in the 1970s, but it will also mean less revenue for the federal and state governments.

If Obama wanted to create jobs and stimulate growth — and therefore tax revenue — he would drop the corporate tax rate instead of attempting to close this “loophole”. If we had a competitive tax rate, businesses wouldn’t need to go abroad to protect their revenue, and we could collect more in taxes in the long run. In order to realize that, though, Obama would have to be cured of his knee-jerk antipathy towards the private sector, which was perfectly clear in his announcement of this new policy.

But it doesn't end there. In order to stop the use of tax havens offshore by individuals, Obama has made an additional proposal - one that likely transgresses the Constitutional protection of due process. This from Yahoo News:

Obama also planned to ask Congress to crack down on tax havens and implement a major shift in the way courts view guilt. Under Obama's proposal, Americans would have to prove they were not breaking U.S. tax laws by sending money to banks that don't cooperate with tax officials. It essentially would reverse the long-held assumption of innocence in U.S. courts.

That is more than a little outrageous. The due process clause "prevent[s] the deprivation of liberty or property upon application of a standard of proof too lax to make reasonable assurance of accurate factfinding." Nothing could be more "lax" than shifting the burden of proof onto the accused from the outset of a hearing. This is an attack on a fundamental right guaranteed by the Constitution.

Obama shredded the Fifth Amendment takings clause a few days ago when he tried to strong arm secured creditors of Chrysler into accepting a deal that grossly favored a junior creditor - i.e., the UAW. Now today he is proposing to violate the due process clause. Two attacks on our Constitution in a matter of days. Not bad for a Con Law prof, eh?

(Hat Tip: Power & Control)

1 comment:

OBloodyHell said...

> Two attacks on our Constitution in a matter of days. Not bad for a Con Law prof, eh?

Emphasis on the "Con". I think the only expertise he actually has in the Constitution is that he's black.

I certainly see no sign that he actually spent any time learning anything about the document itself, much less the underpinnings of it or the issues its clauses were meant to assail.

Weren't his writings as a student blocked from access or something like that? I know that there was no analysis available using what he wrote as a student and as a student leader during the campaign, as to what his ideas were.