Don’t make things worse for business

By Ray Brown

Most economists agree that a tax increase would be a disastrous blow to our weak economy.

For businesses to hire, investors to invest, entrepreneurs to take risks, and consumers to spend, they need to be able to keep more of their own money. No rewards, no risks: that only makes sense.

Unfortunately, the Obama administration does not share this philosophy. Included in its 2011 budget are several tax increases - on income, investment and businesses - even though the administration predicts the economy will not have picked up by the end of the year.

One proposed change to our tax laws that is particularly unfair and economically dangerous is to the so-called “dual capacity” rules - which tax companies that earn income in the United States and in other countries. Under current law, those companies are given a federal tax credit to offset the foreign taxes they pay on their foreign income. Under the president's 2011 budget, the tax credit will disappear for oil and gas companies. American energy companies will be taxed twice on any income they earn outside the United States.

Foreign companies, of course, will only be taxed once. Additionally, many major foreign corporations are heavily subsidized by their home governments, particularly in the energy sector. The dual capacity double tax may prove most damaging to our economy through its crushing impact on the one industry that fuels every other.

The foreign income double-tax President Obama's budget envisions would hamstring America's energy sector at the very moment we need our core industries to grow.

Energy is one of the best illustrations of the interconnectedness of the modern global economy. Cedar Rapids is fortunate to have the world's largest grain processing corporations and leading manufacturers. These industries rely heavily on energy usage, and depend on affordable prices. The Obama budget is therefore targeting those companies indirectly, by increasing their cost of business and forcing them to make budget cuts, which could mean job cuts.

These and other industrial leaders in the region rely heavily on energy products. Agriculture, manufacturing, shipping and related industries need fuel, and a lot of it, to operate. When energy prices rise - as they inevitably will if Congress raises taxes on energy companies - energy-intensive companies will take a hit. When companies make money, they use that money to hire and invest - that's how the economy grows.

Ask even the smallest business owner what happens when profits start to shrink. You cut back. That means job losses, wage cuts and maybe turning full-time employees into part-time employees. It means retrenching and not investing until the storm passes.

But this storm won't pass: the dual capacity tax hike, as currently envisioned, is permanent. The jobs killed by this new double tax may never come back.

Cedar Rapids cannot sustain a direct attack against many of its largest companies, an attack that also will directly benefit those companies' leading foreign competitors. Double taxation isn't fair, and in the middle of a recession, it isn't smart either.

Our agriculture, energy, manufacturing, transportation and other industries are doing their best to create jobs and grow us out of these difficult times. We should all agree that Washington should not make things worse.

Ray Brown is a principal and the CFO of THE ESCO Group, an industrial electrical-contracting, automation, engineering and testing company in Marion, Iowa. Comments: raybrown@theescogroup.com