Robert Samuelson is Not a Fan of the Corporate Tax

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There is much that I find agreeable in Robert Samuelson's column on the corporate tax, but I don't understand the upshot of this paragraph:

Most countries don't tax the foreign profits of their multinational firms at all. Take a Swiss multinational with operations in South Korea. It pays a 27.5 percent Korean corporate tax on its profits and can bring home the rest tax-free. By contrast, a U.S. firm in Korea pays the Korean tax and, if it returns the profits to the United States, faces the 35 percent U.S. corporate tax rate. American companies can defer the U.S. tax by keeping the profits abroad (naturally, many do), and when repatriated, companies get a credit for foreign taxes paid. In this case, they'd pay the difference between the Korean rate (27.5 percent) and the U.S. rate (35 percent).

This is all accurate, but none of it is an argument against anything Obama is proposing. Samuelson is saying (1) American companies need to pay the American rate when they repatriate profits from abroad, and (2) American companies can very easily avoid the American rate by keeping profits abroad. This isn't a system that disadvantages American companies, and, more to the point, it's not a system that Obama is changing.

It's also not hard to see why this compromise exists. If you're earning money abroad and reinvesting it abroad, you pay the relevant foreign rate -- just like all the other multinationals competing in the same market. If you're earning money abroad and bringing it back to the US, you pay the same rate as domestic American companies. Presto: horizontal fairness. Or at least the nearest approximation.

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Conor Clarke is the editor, with Michael Kinsley, of Creative Capitalism. He was previously a fellow at The Atlantic and an editor at The Guardian. More

Conor Clarke is the editor, with Michael Kinsley, of Creative Capitalism, an economics blog that was recently published in book form by Simon and Schuster. He was previously a fellow at The Atlantic and an editor at The Guardian. He is also on Twitter.
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