How do you attract business? Higher taxes!

That's the plan, at least, that Obama set out on May 4th. Touting the collection of measures as loophole closing, it basically makes it more difficult for US based companies to "hide" money overseas, by producing products in areas that are cheaper to run in and then selling them here. Moneys made overseas by US based businesses are not taxed at the American rate, so the Feds "lose" that tax money and the companies have an incentive to produce things overseas.

The American Thinker has an excellent article that explains it quite well. An excerpt:

"America's 35% corporate tax rate is the second highest in the world. Emerging markets have much lower rates. Ireland's corporate tax rate, for example, is only 12.5%. If an American corporation produces in Ireland, it only pays 12.5% tax on its income, while if it produces in America it pays 35%.

President Obama is correct that current tax policy creates inefficient incentives for outsourcing. Suppose that the US-based Widget Corporation is trying to decide whether to build a factory in the US or in Ireland. Based on the cost of production, distribution, and shipping, producing widgets in the US will earn a profit of $10 per widget. Producing in Ireland will earn a profit of only $8 per widget. The economically efficient thing to do is to produce widgets in the US. Except for the tax consequences! Ireland has lower corporate tax rates. Consequently, the after-tax profits in Ireland are $7 while the after-tax profits in the US are $6.50. "

By enacting this plan of his, he will effectively make the tax rate of, say, Ireland, the same as the US tax rate by taxing the companies the difference. That will mean it will become cheaper to produce in the US again, so the Widget corporation will move all the jobs back here. Hooray! Problem solved! Let's get some ice cream.

Wait, sorry. Got trapped in an alternate reality where that plan might work. As we travel back to Earth, let's review a basic principle: Every company exists to turn a profit, and will act in the manner that allows it turn the greatest amount of profit possible while expending the least amount of resources possible. Think of this kind of like the "Path of Least Resistance" principle (PLR). Any company that does not follow this principle will not remain a company very long.

Keeping that in mind, we understand that the US can only tax the earnings of a company who is based in the US. Tthis plan makes it uncomfortable for a company to be partially exported (produce elsewhere, based here), making sure that is no longer the PLR. However, it does not make being domestic (Produce and based in the US) any better, because all the plan does is raise taxes. What the plan, which American Thinker aptly labels the "The Outsource Corporate Headquarters Act of 2009", is make the cheapest and easiest option (The PLR) to leave America entirely. Then, they get to live it up with Ireland's cheap tax rate and all they have to pay here in the US are fees associated with exporting, which will end up not costing nearly as much as our outrageous tax rate.

If we alternatively sought to make it cheap and cost effective to run businesses in the US by completely removing the corporate tax rate (or at the very least slashing it to less than 10%), it would solve the problem of US companies exporting jobs and it would attract foreign companies to move to America.

We could also achieve the same thing by moving to a flat tax system, or a VAT (Value added tax) system. Either way, it would make it cheaper to run businesses.

But who am I kidding? I'm sure Super CEO Obama knows what he's doing.