Democrats Distort the Tax Hike Included in Farm Bill

From the Ways and Means Republicans site:

Democrats Claim:

The Farm Bill Tax Hike will not apply to any company headquartered in the United States.

The Facts: This [claim] is highly misleading.

U.S.-headquartered companies aren’t the only ones creating jobs in the United States. Foreign-headquartered companies employ over five million Americans with annual payroll of more than $230 billion.

Millions more Americans are employed by U.S. companies that supply parts and labor to these companies. Toyota, for example, has 34,675 direct employees, plus another 74,060 employed by their franchised dealers and an additional 74,660 employed manufacturing parts for Toyota vehicles at supplier companies.

The bill is opposed by many U.S.-based companies who fear the abrogation of these tax treaties will spark international retaliation. As U.S. Treasury Secretary Paulson warned in a letter to Ranking Member McCrery, “In fact, the tax proposal may even cause other countries to retaliate, raising taxes on U.S. companies with multinational operations.”

Let me take these one at a time...

Democrats are saying that the tax will not effect any company that is headquartered in the United States, which is true; but as the first bullet point illustrates, a significant number of American jobs are due to employment by companies headquartered outside of the United States. How those jobs will be effected by this tax increase is yet to be seen, but it is likely that jobs will be lost as production costs rise.

The second point demonstrates that there will be unintended victims of this tax increase as well. Supplier companies to the American subsidiaries is a booming business in and of itself. If the insourced jobs go away, so does the business for a good number of the supplier companies.

The last point is probably one of the stealthest of problems this tax increase invites: a trade war. We are in a global economy today, and we have to start realizing that protectionist behaviors such as this tax increase have consequences that reach far beyond the Democrats' intended targets.

Democrats Claim:

The Farm Bill Offset does NOT target our major trading partners:

The Facts: That is what Democrats COULD have done. It is not, however, what they did. The provision was drafted much more broadly and covers situations in which all of the companies are in countries with which the U.S. has tax treaties.

This is the typical twisting of truth that we have come to expect from this Democratic majority. The Farm Bill doesn't target our major trading partners, it targets ALL of our trading partners...

Democrats Claim:

The Farm Bill Offset will not hurt foreign investment:

The Facts: Again, this is simply untrue. The bill could have been drafted to apply only to situations in which the parent company is located in a “tax haven,” but it was not.

Here is an example of how it could substantially impact future foreign investment in the U.S.: A Japanese Car company which has manufacturing plants in the U.S. and employs thousands of people, could have a British finance subsidiary, a not uncommon practice for even U.S.-based firms accessing the European capital market. That U.K. subsidiary receives interest payments on loans made to the U.S. manufacturing subsidiary. Those payments, under the proposal, would be subject to withholding tax at the rate applicable to payments made directly to the Japanese parent (10 percent), not the zero percent rate under the U.K. tax treaty, even if those interest payments are never sent to Japan and are instead used to make more loans in the United States to build additional manufacturing capacity. Moreover, the U.K. may deny the finance company a deduction or credit on the amounts withheld because, under its treaty with the U.S., the withholding rate on those payments should be zero. This would result in double taxation.

The concern that this tax hike would make the U.S. economy less competitive is one of the key reasons the Chamber of Commerce, the National Association of Manufacturers, The Business Roundtable, and others oppose this bill.

Bottom line: This proposed tax increase is just bad news. It's bad for American workers. It is bad for foreign investment in America. And it is bad for the American economy. If the Democratic Congress needs to raise funds to pay for this Farm Bill, maybe they ought to look at trimming the pork in it and most other bills being considered.

This excerpt from a Ways and Means Republicans press release sums it up:

“This proposal will raise taxes on many businesses operating in the United States,” said Ways and Means Ranking Member Jim McCrery. “It will hurt our competitiveness and our standing in the world by carelessly violating a host of treaties. It is bad policy and bad politics. Democrats are trying to sneak a far-reaching and potentially destructive proposal through the House without proper consideration. Any fair-minded person who cares about the U.S. economy will oppose this bill.”

Rep. Doggett’s legislation would increase taxes, in some cases imposing the equivalent of a 30 percent gross receipts tax on certain American businesses that are owned by foreign companies. Companies that could be affected by this tax increase include Honda North America, Food Lion, Nestle, Bayer, BASF, T-Mobile, and many more. This higher rate would override a series of carefully negotiated treaties between the U.S. and foreign nations that have been approved by the U.S. Senate over the past several decades.

This isn't one of those "sexy" issues that will get a whole lot of attention but it is vital that the American people understand what it is that is happening with this bill and what it will mean for our economy. This proposal is a job-killer, plain and simple.

UPDATE: Another word or two on the "stealthiness" of this proposal needs to be devoted to how it was attached to the Farm Bill. If you read the two links from above; you'll have seen veiled references to what I am about to reveal:

Doggett introduced his tax increase in the Ways & Means Committee late last Tuesday night as a way to help pay for the increased spending in the Farm Bill. The way in which this was written meant that it would automatically be enacted if the Farm Bill passed – basically, it was connected to the Farm Bill so that there was no way to strike it on the House Floor.

This is the way Democrats work...they raise your taxes by slipping proposals like this in to important bills at the last minute and hope that the American people don't hear about it in time to raise a ruckus. I suspect that Democrats didn't expect this to raise flags anyway as they tend to think that all businesses are in the business of giving people jobs and that's it. They never think of the consequences of their so-called charity.