Friends of the U.S. Chamber of Commerce

September 21, 2012
Financial Times
Richard McGregor, James Politi

The rally to re-elect Barack Obama starts as most do – with a prayer, the pledge of allegiance, the national anthem and a cameo from a self-professed member of the middle-class espousing the benefits of the president’s policies.

But when Joe Biden, the vice-president, walks on stage, a feeling of warmth and familiarity sweeps through the partisan crowd rather than the awe and adulation that usually greets Mr Obama.

Mr Biden has many detractors for what they say is his foot-in-mouth style – respondents to a recent poll by the Pew Research Centre used negative terms, such as “idiot” and “clown”, to describe him.

But in America’s recovering rust belt states like Ohio and Wisconsin, Mr Biden is one of the administration’s most potent emissaries to the voters who like the president the least – the white working class.

“I think he is a lot more popular here than Barack,” whispers a local reporter as Mr Biden arrives to speak to a largely white audience in Eau Claire, in western Wisconsin.

Mr Biden is also a foil to the Republican vice-presidential nominee, Paul Ryan, the young congressman whose good looks and policy smarts have helped put his home state of Wisconsin in to play.

But Mr Biden’s populist attacks on US multinationals are raising concerns in corporate America and dimming its hopes for forging a more globally competitive tax system after the election.

The biggest issue is the so-called “territorial taxation system”, which, out of the sight of the national media, Mr Biden has been bashing in campaign stops to appeal to blue collar voters.

While the US taxes foreign earnings when they are brought back to the country under its “worldwide” system, most developed nations embrace versions of territorial systems that do not tax overseas profits.

“I would love to see the administration move towards accepting that,” says Caroline Harris, chief tax counsel at the US Chamber of Commerce. “It would be in line with the OECD norm and level the playing field.”

But Mr Biden’s hard line in the campaign will make such reforms difficult.

In a speech in Dayton, Ohio which ranged from the attack on the US Embassy in Libya to the price of mammograms under Obamacare, Mr Biden beamed how pleased he was to be at “Wayne State University”.

“It’s Wright State!” members of the crowd yelled back, the university’s correct name.

Soon, he switched topics, announcing: “Let me tell you about territorial taxation.”

Republican candidate Mitt Romney takes on President Barack Obama in the race for the White House

“If you go and invest overseas and make millions of dollars abroad, you pay tax in that country and not in the US,” he said, bringing loud booing from the crowd.

The next day, in Wisconsin, he cited a study saying a territorial system would create “800,000 jobs in China and Indonesia.”

If Mitt Romney went on a jobs tour, he added, he would have to do it in Asia.

The US Treasury rejected a “pure territorial system” in its corporate tax proposal in February, saying it could “aggravate” problems with the corporate tax code, by offering further incentives for companies to shift production or profits overseas.

Instead, it imposed a minimum tax on overseas profits to reduce incentives for offshoring.

But supporters had hoped that a second Obama administration would be open to some form of territorial taxation, as part of a broad deficit reduction and tax reform deal with Congress.

“We are optimistic a productive dialogue can be had once the campaign season winds down and Congress gets focused on policy making,” says Matt Miller, vice-president at the Business Roundtable.

The key probably resides in the conditions attached to a territorial system. Michael Ettlinger, an analyst at the Center for American Progress, a think-tank close to Democrats, says Mr Biden is “perfectly right to go after” a pure territorial system.

He notes that within the administration “everyone is in agreement that you can’t just have a pure territorial system which Romney is proposing” but adds there are “probably mixed feelings” about moving towards a territorial system with limits.

“It’s a balance,” says Mr Ettlinger. “There’s huge problems with going to a territorial system and there’s problems with our current system. The corporate lobbying community doesn’t care about getting the balance right. They want the balance to be all on one side.”

In Eau Claire, Tom Rebischke, 43, a local firefighter said after Mr Biden’s speech that the vice-president seemed “a regular guy.” On the issue of territorial taxation, however, he said, he had never heard of it before Mr Biden’s speech.

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