About That Tax Break

One of our favorite moments in Wednesday’s presidential debate, among many, came when Barack Obama launched into his frequent complaint about the tax break for shipping jobs overseas. Mitt Romney responded that in his many years of big-time business he had never encountered such a tax break, and joked that perhaps he should have been hiring better accountants.

Obama made much of the line when attempting to do post-debate damage control at a campaign rally on Thursday, mocking the supposedly savvy businessman for his ignorance of the most basic business practices. The crowd of adoring fans ate it up, because of course there’s a big tax break for shipping jobs overseas. Everyone knows that.

As with so many of the things everyone knows, however, a moment’s reflection should raise suspicions about whether it is actually true or not. Did some congressman actually stand up in the House or Senate and propose a Tax Break For Shipping Jobs Overseas Act? Did a president actually hold a signing ceremony for such a bill upon its passage by a majority of reelection-seeking politicians, and proudly proclaim that America would now enter a bold new era of mass domestic unemployment? Did such an outrage actually go unnoticed by the press and the American public? Anyone willing to believe so would probably also believe that Romney has remained competitive in a national election on a platform of tax hikes for the middle class and tax cuts for the filthy rich, but Obama seems to be doing well enough with that line and will likely find a few takers for the shipping-jobs-overseas-tax- break canard as well.

Obama’s more sophisticated supporters, of which there are a few, will roll their eyes and explain impatiently that he’s talking about the tax deferral provisions for foreign profits earned by multi-national corporations. This takes the discussion far beyond what everyone knows, naturally, and Obama is surely hoping that it goes so deep into the forbidding thicket of tax code complexity that only the most intrepid policy wonks will dare to investigate. Those who do take the time and effort to understand the rule and its consequences will likely conclude that it is a sound policy and that Obama’s proposed revision is a bad idea.

Put in the simplest terms we can muster, current law allows American-based companies that do business in foreign countries to defer paying the 35 percent corporate tax rate until the profits are returned home. Because doing business in foreign countries usually entails hiring some natives who are familiar with the local language, laws, and culture, and in some cases factory workers making products that can be more cost-efficiently shipped to local markets, this can indeed be construed as a “tax break” for overseas jobs. Never mind that in most cases the jobs are being created rather than replaced, and that in almost every case the jobs would not be created in America for logistical reasons that a law cannot change, or that the taxes are eventually being paid at the highest corporate rate in the industrialized world, its close enough to a tax break for shipping jobs overseas for government work.

The outraged crowds at the Obama rallies should stop to consider, however, that their candidate’s proposal to eliminate the rule will put American companies at a competitive disadvantage in global markets. Other countries don’t tax foreign profits at all, much less at the highest corporate tax rate in the industrialized world, so they’ll be able to offer much lower prices than American firms paying taxes to both the foreign country and the homeland. Many companies will eventually respond by leaving America altogether, taking their jobs and tax revenues with them, and the ones that stay will be the ones that can lobby and contribute their way to other favors.

Many of the screaming fans at the Obama rallies will be quite happy with anything that hurts those darned corporations, which are somehow blamed for keeping the American economy in its current sluggish state. Obama was back to bashing those evil corporate jet owners in Wednesday’s debate, a habit that annoys even his most ardent supporters here in Wichita, “The Air Capital of the World,” where evil corporate jet owners are the lifeblood of the local economy, and anti-business rhetoric continues to be a staple of the campaign.

The real reason that corporations aren’t hiring in America, apparently, is because they just aren’t taxed, regulated, and demonized sufficiently here. Everyone knows that.

— Bud Norman

Corporate Jets and the Common Man

The big story here in Wichita, Kansas, is the expected bankruptcy filing of the Hawker Beechcraft Company. It would be hard to overstate the devastating effect that such a move would have on the “Air Capital of the World,” where the venerable airplane manufacturer has been a mainstay of the local economy and a source of civic pride ever since the legendary aviation pioneer Walter Beech started his world-famous company here back in 1932.

Various reasons have been offered for the company’s financial difficulties, but the ones most often mentioned are the sluggish state of the economy and stiff competition from the rest of the corporate aviation industry, including such local firms as Bombardier Learjet and Cessna. Many Wichitans can’t help thinking, though, that it didn’t help one bit to have the President of the United States and many of his party’s congressional members demonize corporate jet owners and seek to make corporate jet ownership prohibitively expensive.

The rhetorical assault on corporate jets began in the early days of the Obama administration, when Chrysler and General Motors executives were widely criticized by some of the news media and several Democratic congressmen for flying in corporate jets from Detroit to Washington, D.C., to plead for a bail-out. The critics were all in favor of the bail-outs, of course, but apparently felt that the plan would be less offensive to an outraged public if the executives had been forced to endure a Greyhound bus trip in order to gain the money.

With corporate jet ownership thus established as the epitome of wretched corporate excess, Obama proposed eliminating several tax laws that made corporate aviation more affordable and began to feature corporate jet owners prominently in his speeches. He even went to far as to suggest that corporate jet ownership would cause students to lose college scholarships, dangerous storms to go unreported, and tainted food to poison helpless consumers.

It was all nonsense, of course, as the proposed changes in the tax code would have raised only $3 billion or so over 10 years, a mere pittance compared to the $7.2 trillion in deficits that Obama proposed to rack up over the same time span. That’s not counting the tax revenues that would have been lost if the corporate aviation industry were to go bankrupt, or the cost of unemployment compensation and welfare payments to the industry’s former workers.

Hawker Beechcraft might well survive after a Chapter 11 reorganization, but the process would be a humbling blow to Wichita nonetheless. People motivated more by envy than reason in other communities would possibly derive some satisfaction in the knowledge that those corporate jet-flying fat cats had suffered, but they should stop to consider the blue collar types whose welfare would also be adversely affected. They should also look around their own towns and cities to consider how much of their own local economies are dependent on the business of people who are flying in to make a deal.

— Bud Norman