February 19, 2008
More on economic patriotism
Something I should have mentioned in my previous post on Obama’s “Patriot Employers” plan is the possibility, indeed the likelihood, that the arrangements he’s proposing are at odds with US treaty obligations under the WTO. Of course I understand that this only makes the idea even more attractive to hardline anti-trade types, Democrat and Republican alike. But I keep being told that one of the reasons for supporting Obama is that he would improve and even transform relations with America’s friends abroad. If he hopes to do that, picking an immediate fight over existing trade agreements might not be the best way to start. (I thank a European diplomat who would doubtless prefer to remain nameless for drawing this to my attention.)
International legality aside, why is the idea such a bad one? The plan appears to have two parts: cut taxes for companies that meet some tests of good behavior, and (to make good the revenue shortfall) raise the tax that US-based companies have to pay on profits earned abroad. The first is the kind of leaden-handed intervention that I had hoped Obama would avoid. The second reprises a discredited idea of John Kerry from 2004.
Let me refresh your memory about that earlier debate. At the moment, foreign investments by US-based companies are usually taxed at a lower rate than would apply to profits earned at home. Why? Because America’s corporate tax rates are higher than the rates typically levied by other countries. Making the US-based company pay the full US domestic rate (ie, the foreign tax, plus a margin to make up the difference) on overseas profits would, it is true, eliminate the tax incentive to invest those profits abroad. But it would also encourage US-based companies to divest their foreign activities outright, and it would put US companies that did continue to operate abroad at a significant disadvantage to their foreign competitors. Realistically, tax avoidance is only one factor, and usually not the main one, in investment decisions of this kind, so the effect of this change on jobs and wages might not be great either way–but I’d guess it more likely to be negative than positive.
Here is a good analysis of the Kerry proposal by Gary Hufbauer of the Peterson Institute for International Economics. On the broader issue of outsourcing–what to do about it, and how much of a probelm it is in the first place–I recommend this paper by Greg Mankiw and Phillip Swagel.
Dear Mr. Crook,
Posted by: E Carson | February 20th, 2008 at 10:17 am | Report this commentWho sent you the wake-up call regarding Mr. Obama’s economic plan? Couldn’t be one of those panicking Clinton supporters who is also working on Obama’s pledged delegates could it? Or perhaps a disgruntled Financial Times editor who has been to a Clinton dinner and feels an obligation? Just wondering, because you published declaring strong support of Mr. Obama just 2 days ago (on Monday) and last week. How could you overlook his position on financial and economic issues?? Are you writing for Mothering Magazine or the Financial Times? Such ill-considered public flip-flopping is certainly a Clinton characteristic. Perhaps you could take Mr. Obama as a model and start somewhere reasonable, ask questions, and keep working hard while learning ever more and developing a sound position. I’m sure Mr. Obama, along with his advisors, will be able to develop a economic plan for OUR country, while remaining true to himself, his last-week beliefs, and his supporters. Please roll up your sleeves, put your knowledge to constructive use and write with specific advice on how to improve the economic plan of the US’s best candiate in decades. Critical knocking is easier, and perhaps more fun, but aren’t we audaciously trying to raise our level of interaction and commitment? You may help!
It seems Obama is the one doing the flip-flopping. That is, during the rare moments when he is saying something substantive, not just spraying catch-words.
Or maybe he meant ‘change’ more than we realised: change once to the left, change once to the right. (Reminds of that Dylan song: “…wriggle to the left, wriggle to the right…”.)
We’re the ones we’ve been waiting for. Definitely.
RCS
Posted by: Ron Cohen-Seban | February 20th, 2008 at 11:35 am | Report this commentFar be it for Sen. Obama to consider actually lowering corporate tax rates to internationally competitive levels, rather than doling out a series of fines, penalties, and subsidy to selected industries favored by the Government.
JBP
Posted by: John Powers | February 20th, 2008 at 12:52 pm | Report this commentTo Ron Cohen-Seban,
Posted by: Marni Sharon | February 20th, 2008 at 2:35 pm | Report this commentYou insist on bashing Obama in the same indiscriminate, unargumentative and empty way in every single FT blog in which you participate. If you really wanted to find out about “substance” you would have checked his website. Clearly there is quite a lot of prejudice.. you also insist on calling him narcissistic, there is also more than a little jealousy.
Dear Marni Sharon,
I can assure you I have no political ambitions and I am in no way jealous of Mr Obama. As for “prejudice”, if you are insinuating that I am racist — that is absolutely not true.
You do have a point when you say I am bashing Mr Obama in an unargumentative fashion. In part, this reflects the difficulty of arguing against nothing (other than empty rhetoric). You mention his website: anyone can invite experts to write policy papers, however the proof of the pudding is in watching a candidate debate and in this Mr Obama is unimpressive. But it is also true that I leave it to others to minutely analyse; I rather prefer to point at the intuitively obvious: that the king is naked.
Posted by: Ron Cohen-Seban | February 20th, 2008 at 4:29 pm | Report this commentMr. Cohen-Seban has made a good point which he has failed to interpret correctly. (That intuition thing takes some getting used to.) Barak Obama goes forth UNADORNED. He steps out without the gold of lobbyists dictating his policies, without the party oldtimers in his pocket. It is (also) for this reason that Obama is receiving the mandate of the people.
Posted by: E Carson | February 21st, 2008 at 9:01 am | Report this commentExcept for the lobbyists from ADM, whose private plane, Sen. Obama was using, while the “unadorned” one campaigns for high tariffs on imported ethanol, to directly benefit ADM penalize “the people”.
How can anyone think a supporter of the Bridge to Nowhere (Sen. Obama) is somehow an atypical politician.
JBP
Posted by: John Powers | February 21st, 2008 at 1:12 pm | Report this commentThey can think it because they want to believe it. Obamamania is another of those historic episodes of mass self-delusion. Let’s hope it will crash on the rocks of the post-primary campaign.
RCS
Posted by: Ron Cohen-Seban | February 21st, 2008 at 7:18 pm | Report this comment