Effect of Obama business-tax proposals debated

New business-tax proposals introduced yesterday by President Obama could close loopholes and add $210 billion in new revenue to the federal kitty over 10 years.

Or, they could lead to job losses, higher prices, and the sale of some foreign units of U.S. companies.

Or, because of the perverse and often conflicting tangle of global tax rules, they could result in all those outcomes.

"You can make the case both ways, and that's why you've heard it both ways," said Phil West, a lawyer with Steptoe & Johnson L.L.P., who was international tax counsel for the Treasury Department under President Bill Clinton.

The Obama administration touted its new tax plan as eliminating incentives for U.S. companies to create jobs overseas. Several rules allow companies here to defer or avoid paying taxes on foreign earnings to the U.S. government.

"It's a tax code that makes it all too easy for a number - a small number of individuals and companies - to abuse overseas tax havens to avoid paying any taxes at all," Obama explained in Washington. "And it's a tax code that says you should pay lower taxes if you create a job in Bangalore, India, than if you create one in Buffalo, New York."

Some business leaders immediately attacked the proposal.

"This plan will reduce the ability of U.S. companies to compete in foreign markets, which will not only reduce jobs, but will also cripple economic growth here in the United States. It couldn't come at a worse time," said John J. Castellani, president of the Business Roundtable, an association of chief executive officers of large companies.

Herbert Odell, a tax lawyer in the West Conshohocken office of the Houston law firm Chamberlain Hrdlicka, said the proposed changes were not likely to bring jobs back to this country. Companies move overseas for many reasons, including lower wages and other costs, he said.

"If the administration wanted to get jobs back into the United States, the best thing they could do is to cut the U.S. corporate tax rate," Odell said.

Experts disagree on whether the changes the Obama administration is discussing put U.S. rules on par with tax regulations in other countries. West said the answer varied depending on the country. Also, other countries may change their rules if the United States does.

Howard Wachtel, professor emeritus of economics at American University, said European companies generally taxed overseas earnings more than the United States does.

"The Europeans don't allow their companies as much leeway," Wachtel said.

Edward Lemanowicz, a partner at the Philadelphia law firm Dechert L.L.P., said the changes could become a factor when U.S. companies consider selling foreign subsidiaries, which would become more attractive to buyers in countries with tax policies more favorable than those in the United States.