Tax Deferral (Opinion)

Leland Tollett, CEO and president of Tyson Foods Inc., sent letters to Sens. Blanche Lincoln and Mark Pryor in June concerning a proposal in President Obama’s fiscal 2010 budget that would increase U.S. taxes on Tyson’s foreign operations.

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What Tollett was referring to is repeal, or at least a scaling back, of the so-called corporate “tax deferral” law, a provision that allows multinational companies to defer U.S. taxes owed by subsidiaries operating in foreign countries until the income is sent back to the United States.

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With deferral, foreign affiliates of U.S. companies pay the same rate of tax as their foreign-owned competitors while those earnings remain reinvested overseas. Most competitor nations have a territorial tax system, under which foreign earnings are never taxed.

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U.S. businesses already pay the second-highest corporate tax rate in the world, behind only Japan. The Obama proposal to cut out or cut back tax deferral would mean a huge tax increase for American businesses with overseas operations – a total tax burden of 50 percent on foreign operations in some cases.

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A report in June, commissioned by the Technology CEO Council, a coalition of chairmen and CEOs of information-technology companies, found that as many as 2.2 million American jobs could be put at risk by the administration’s proposal, which also would make U.S. companies less competitive abroad and weaken their investments.

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Tyson isn’t the only large Arkansas company that could be hurt by the proposal. Wal-Mart Stores Inc., Baldor Electric Co. and Murphy Oil Corp. all have sizable operations overseas.

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Tyson is the world’s largest meat producer, but as Tollett points out in his letter, it has many foreign competitors nipping at its heels. Generally, Tollett said, those foreign competitors pay only the local taxes on their operations. Of course, Tyson must also pay those local taxes.

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If the administration plan is approved, Tyson would be denied deductions for expenses connected with its foreign operations.

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That, in effect, would increase the tax rate on Tyson’s foreign operations and make it less competitive.

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Arkansas’ multinational firms — as well as those all across the nation — shouldn’t be penalized for doing business in lower-tax countries with competitive tax systems.

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We live in a day with a global economy. The government should not be discouraging businesses from seeking opportunities around the world.

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Lincoln sits on the Senate Finance Committee, which will eventually consider the proposal. Neither she nor Pryor has publicly stated a position, but we hope they consider how it could harm these Arkansas companies.

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