NY Times Gets it Right on Obama Tax Plan

In a post yesterday on Obama's tax plan, I argued that the Administrations proposals to limit the ability of U.S. companies to defer foreign income and restrict the use of credits for foreign taxes paid will hobble the competitiveness of U.S. firms and may end up costing jobs rather than saving them.  The NY Times expands on this point in a well-reasoned op-ed today critical of the Obama tax plan:

One of the most controversial proposals would delay deductions against overseas profits until those profits are brought back to the United States. In theory, that makes perfect sense, because matching deductions and income in the same year is a fundamental principle of United States tax law.

In practice, applying the matching principle to overseas operations could put American companies at a competitive disadvantage to foreign companies that do not face United States tax laws. It could even impede job creation in the United States — exactly the opposite of what the Obama administration intends. That’s because some of the expenses incurred in generating foreign profits are for support jobs in the United States, like human resources and accounting positions. If companies cannot write off those employment expenses in the year they are incurred, they may move the jobs overseas.

If you want to reduce tax avoidance, the best solution is a simpilar tax system that abandons the tangle of deductions and credits that distort economic decisions and provide opportunities for gamesmanship.  If President Obama wants to make a real contribution to addressing this problem, he would be better served to set his Treasury to work untangeling the maze of counterproductive tax preferences  accumulated through decades of (usually) well-intentioned tinkering with the tax code.