"US Multinational Companies Face Reverse Discrimination"...Criticism of Biden's 'Job Attraction' Pledge

Peterson International Economic Institute Report... "10% Punitive Surcharge Is a 50-Year-Old Legacy"
"Tax System Becomes More Complex and Effectiveness Questioned"

[Image source=AP Yonhap News]

[Asia Economy Reporter Naju-seok] Critical voices are emerging against Democratic presidential candidate Joe Biden's 'reshoring' incentive pledge aimed at bringing overseas business operations back to the United States.

They argue that punitive taxation is outdated and that U.S.-based multinational corporations risk being unfairly disadvantaged in overseas markets. As Biden leads in the polls, scrutiny of this pledge is expected to intensify.

Gary Clyde Hufbauer, senior fellow at the Peterson Institute for International Economics (PIIE), recently summarized in a report analyzing Biden's reshoring policy that "the tax code is becoming more complex, and its effectiveness is questionable."

Previously, Biden proposed raising the corporate tax rate from 21% to 28%, and imposing a 10% punitive tax on profits generated when American companies bring products manufactured overseas into the U.S. for sale. This would result in a top tax rate of 30.8%. Conversely, companies relocating operations to the U.S. would receive a 10% tax credit.

Hufbauer criticized the punitive tax aspect. He said, "It recalls the capital export neutrality principle that spread among the U.S. and other advanced countries 50 years ago," adding, "Today, it is almost legally abandoned."

Capital export neutrality means that regardless of which country a domestic company invests in, the effective tax burden on the returns should not differ. He noted, "Some countries want to reduce the tax burden on their companies pioneering overseas." He also introduced the Burke-Hartke bill, proposed in 1972 with similar provisions to Biden's pledge, which ultimately did not become law.

He further argued that if punitive taxation is implemented, multinational corporations from countries like Japan or Germany could benefit indirectly. While U.S. companies would bear additional taxes for producing abroad, foreign companies could avoid such burdens. This could lead to a tax reform intended to protect American jobs instead strengthening the competitiveness of foreign companies.

Fundamentally, he pointed out that the policy could negatively impact American jobs contrary to its original intent. Companies adopting international division of labor?conducting high value-added activities such as research and development (R&D) or design in the U.S. while producing in countries with lower labor costs?could also face punitive taxes.

The increasing complexity of the tax system would inevitably raise costs related to tax and legal services. Determining whether punitive taxation applies requires examining if production occurred overseas, potentially increasing demand for tax attorneys, accountants, and tax authority personnel.

He also raised criticism of the corporate tax itself, suggesting that U.S. companies may face a heavier tax burden compared to those in countries like Ireland or the United Kingdom.

Additionally, Hufbauer predicted that introducing such a tax system would inevitably lead to higher product prices borne by American consumers. Costs from punitive taxation and the complexities of the tax system would inevitably be passed on to consumers.

This content was produced with the assistance of AI translation services.