"Firms Move to Fight Overseas-Profit Tax" by JOHN D. McKINNON, Wall Street Journal
In one of the biggest battles between the business community and the White House, corporate lobbyists are intensifying efforts to block an Obama administration proposal to raise taxes on overseas profits. Executives say the measure, which could cost U.S.-based multinationals $100 billion over the next decade, would hamper economic recovery efforts.
In recent days, groups including the Business Roundtable, the U.S. Chamber of Commerce, the National Association of Manufacturers and the National Foreign Trade Council have helped form a lobbying coalition called Protect America's Competitive Edge that is devoted specifically to the issue. A letter sent to Congress last month opposing the plan was signed by 200 trade associations and companies, including General Electric Co., Intel Corp., International Business Machines Corp., McDonald's Corp., Merck & Co. and Microsoft Corp.
But even if businesses succeed in holding off the plan, they are likely gaining only a temporary respite. While prospects for quick action on the idea this year are dimming, it is likely to become a central element in a broader tax overhaul the White House is planning, according to business lobbyists and legislative aides, as the administration searches for revenue to cover the costs of some of its big initiatives.
At issue is a longstanding feature of American tax policy that allows multinationals to avoid U.S. taxes on much of their overseas earnings, as long as the money remains invested offshore. Many companies use the rule to park overseas earnings in tax-haven countries for years.
Corporate defenders of the policy say it is a sensible way for the U.S. to level the global playing field for American firms, because many foreign governments don't tax their companies' overseas earnings.
But critics of the U.S. provision, known as deferral, say the policy encourages American multinationals to add facilities and jobs overseas rather than expanding back home. They also say it contributes to the inefficiency of the U.S. tax system, making it more difficult to raise the money the government needs. By some estimates, as much as $800 billion in U.S. companies' earnings is currently held offshore.
The current U.S. deferral policy is expected to cost the government about $61 billion in forgone tax revenue over the next five years, according to Congress's Joint Committee on Taxation.
President Barack Obama raised concerns about deferral frequently during the 2008 presidential campaign. In his late-February address to a joint session of Congress, he vowed to "restore a sense of fairness and balance to our tax code by finally ending the tax breaks for corporations that ship our jobs overseas."
His budget a few days later promised to "reform deferral" and also increase enforcement against international tax evasion. The combined measures were projected to raise $210 billion over the next decade. But the budget provided almost no details.
Terming deferral "very, very important" to multinationals' competitiveness, IBM Chief Executive Sam Palmisano questioned Mr. Obama about the issue during a televised meeting in mid-March.
Mr. Obama assured the executives that he wants their companies to remain competitive, and that he is interested "over time" in lowering corporate rates in exchange for closing corporate loopholes. The White House subsequently has announced that it is forming a task force to look at options for simplifying the tax code and tightening loopholes.
At the same time, Mr. Obama told the CEOs, average Americans have trouble understanding why the U.S. would give multinationals a tax break on their overseas earnings.
"I think people generally feel like, let's encourage and motivate corporations to invest here at home, particularly at a time when there's been significant job loss," he said.
Business lobbyists say they would prefer to change deferral -- if at all -- only in the context of a broader overhaul of tax laws that also gives them something they want. Among the possibilities is combining limits on deferral with some lowering of corporate tax rates, a concept being pushed by House Ways and Means Committee Chairman Charles Rangel (D., N.Y.). Mr. Rangel's proposed deferral limit -- part of a 2007 bill -- was estimated to raise corporate taxes by $106 billion over 10 years.
Business lobbyists believe that, in recent weeks, they have made progress convincing lawmakers of the current policy's merits.
"I do think some members of Congress are stepping back a little from deferral," said Bruce Josten of the U.S. Chamber of Commerce. "At least we've caused people to stop and pause."
Another potential complication for the White House: Mr. Rangel prefers to deal with deferral as part of a broader tax overhaul, a spokesman said.
Nevertheless, the White House plans to keep pushing its deferral overhaul in a coming budget plan. Even if the White House effort is unsuccessful this year, it likely raises pressure on businesses to get behind broader corporate tax reform -- an idea for which they have shown little enthusiasm.
"The administration is committed to reforming deferral to improve the overall efficiency and equity of the tax code by reducing incentives to divert investment from the United States in order to avoid taxation," a Treasury spokeswoman said. "The administration has been consulting broadly as it designs the details of this proposal for release in the full budget later this spring."
"Sallie Mae to shift 2,000 jobs to U.S. from overseas" by Elinor Comlay, Reuters
Student loan company Sallie Mae plans to move its overseas operations back to the United States, creating 2,000 domestic jobs, in what analysts called an attempt to curry favor with the Obama administration.
SLM Corp, as the company is legally known, said on Monday it plans to add staff over the next 18 months in call centers, information technology and operations support across the United States. A spokeswoman said the company will pull jobs from India, Mexico and the Philippines.
The move will cost about $35 million per year, Chief Executive Albert Lord said at a press conference attended by Rep. Paul Kanjorski and Sen. Robert Casey, both Democrats from Pennsylvania, where the new jobs will be located.
"We have reversed our decision to move people offshore," Lord said at a press conference at the company's facility in Wilkes-Barre, Pennsylvania, which will gain 600 new jobs.
Analysts called the move a bid to build political capital in Washington as the Obama administration plots major changes to the student loan market.
The administration has proposed a 2010 budget that could hurt Sallie Mae's business by shifting all federal student loans into a program administered by the Department of Education.
Michael Taiano, analyst at Sandler O'Neill & Partners in New York, said of Sallie Mae's maneuver, "Will it help them overturn Obama's budget proposal? I don't think so."
The company is likely hoping that moving jobs back to the United States will earn it goodwill from the administration, Taiano said, putting Sallie Mae in a better position when the details of the student loan program are worked out.
"It probably doesn't hurt to build up political capital, and bringing jobs back to the U.S. certainly does that," he said.
Sallie Mae, the largest U.S. student loan company, employs more than 8,000 people in the United States. It has struggled during the credit crunch to finance the loans it makes to students.
"We were at a point where we could not make a student loan at a profit," Lord said of late 2007 and early 2008, adding that Obama's education plan sparked the company's jobs reversal.
"The president's budget is often portrayed as bad for our business, but I don't see it that way," he said.
He said the White House wants student loans administered, serviced and collected by the private sector, which bodes well for Sallie Mae.
The current loan system may need "a few tweaks" but it essentially works and will yield the budget savings the president wants, Lord said. "If I didn't feel that was going to happen, we surely wouldn't be bringing 2,000 jobs back to this country."
The company reported a net loss of $216 million in the fourth quarter, in which it made $4.8 billion in student loans.
Last month, rating agency Standard & Poor's said Sallie Mae, with $33.9 billion of rated debt, was at risk for a cut to junk status from investment grade. Its shares have fallen 39 percent this year.
The shares were up 17 cents or 3.2 percent at $5.52 on the New York Stock Exchange on Monday afternoon, off an earlier high at $5.85.
When it comes to Sallie Mae who cares WHY they made the move, it's good for America, period.
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