Wednesday, February 27, 2008

Obama's Blue Eagle Act (Patriot Employer Act of 2007)

Earlier today I blogged about the National Recovery Administration (symbolized by a Blue Eagle) and predicted that centralized economic control of that nature was on the horizon if Obama or Hillary were elected.

Little did I know that the Wall Street Journal was already on the case, dissecting the Patriot Employer Act (S. 1945) an innocuous sounding (but odious piece) of legislation. This legislation would designate as a Patriot Employer and give a one percent tax break to any company that meet the definition of Patriot Employer:

Patriot Employer - For purposes of subsection (a), the term `Patriot employer' means, with respect to any taxable year, any taxpayer which--

`(1) maintains its headquarters in the United States if the taxpayer has ever been headquartered in the United States,

`(2) pays at least 60 percent of each employee's health care premiums,

`(3) has in effect, and operates in accordance with, a policy requiring neutrality in employee organizing drives,

`(4) if such taxpayer employs at least 50 employees on average during the taxable year--

`(A) maintains or increases the number of full-time workers in the United States relative to the number of full-time workers outside of the United States,

`(B) compensates each employee of the taxpayer at an hourly rate (or equivalent thereof) not less than an amount equal to the Federal poverty level for a family of three for the calendar year in which the taxable year begins divided by 2,080,

`(C) provides either--

`(i) a defined contribution plan which for any plan year--

`(I) requires the employer to make nonelective contributions of at least 5 percent of compensation for each employee who is not a highly compensated employee, or

`(II) requires the employer to make matching contributions of 100 percent of the elective contributions of each employee who is not a highly compensated employee to the extent such contributions do not exceed the percentage specified by the plan (not less than 5 percent) of the employee's compensation, or

`(ii) a defined benefit plan which for any plan year requires the employer to make contributions on behalf of each employee who is not a highly compensated employee in an amount which will provide an accrued benefit under the plan for the plan year which is not less than 5 percent of the employee's compensation, and

`(D) provides full differential salary and insurance benefits for all National Guard and Reserve employees who are called for active duty, and

`(5) if such taxpayer employs less than 50 employees on average during the taxable year, either--

`(A) compensates each employee of the taxpayer at an hourly rate (or equivalent thereof) not less than an amount equal to the Federal poverty level for a family of 3 for the calendar year in which the taxable year begins divided by 2,080, or

`(B) provides either--

`(i) a defined contribution plan which for any plan year--

`(I) requires the employer to make nonelective contributions of at least 5 percent of compensation for each employee who is not a highly compensated employee, or

`(II) requires the employer to make matching contributions of 100 percent of the elective contributions of each employee who is not a highly compensated employee to the extent such contributions do not exceed the percentage specified by the plan (not less than 5 percent) of the employee's compensation, or

`(ii) a defined benefit plan which for any plan year requires the employer to make contributions on behalf of each employee who is not a highly compensated employee in an amount which will provide an accrued benefit under the plan for the plan year which is not less than 5 percent of the employee's compensation.'.


Doesn't sound too horrible right? Pay a decent wage, fund health care and a pension and don't send jobs overseas and you get a tax break. Here's the catch (or catches actually) - First the cost of complying may well end up costing more than the one percent tax break. Second the unionizing provisions may end up driving up wages and benefits to the point that the company gives up. Third in order to comply companies may have to lay off workers to meet the wage / benefit costs. Fourth The US already has the second highest corporate tax rate in the world.

This is almost guaranteed to drive corporations offshore.

Now some people will say, "But it's voluntary. Companies don't have to participate."
In theory that's true,( just like in theory communism works Marge, in theory) but there is a companion bill in the house, The Patriot Corporation Act (H. R. 3319). This bill defines Patriot Corporation in essentially the same fashion as the Patriot Employer Act, it however offers a five percent tax break, and it throws in a couple of twists:

SEC. 2. FEDERAL CONTRACTING PREFERENCE FOR PATRIOT CORPORATIONS.

After December 31, 2007, in the evaluation of bids or proposals for a contract for the procurement of goods or services, the Federal Government shall provide a preference to any entity that is a Patriot corporation (as defined in section 11(e) of the Internal Revenue Code of 1986, as added by section 3 of this Act ), unless the award of the contract to such entity would jeopardize the national security interests of the United States.

SEC. 3. REDUCTION IN RATE OF INCOME TAX FOR PATRIOT CORPORATIONS.

(a) In General- Section 11 of the Internal Revenue Code of 1986 is amended by adding at the end the following new subsection:

`(e) Patriot Corporations-

`(1) RATE REDUCTION FOR PATRIOT CORPORATIONS- In the case of a Patriot corporation , the amount of the tax imposed under subsection (a) (determined without regard to this paragraph) shall be reduced (but not below zero) by an amount equal to 5 percent of the taxable income of such corporation .

`(2) PATRIOT CORPORATION DEFINED- For purposes of this subsection--

`(A) IN GENERAL- The term `Patriot corporation' means, with respect to any taxable year, any corporation which is certified by the Secretary as meeting the requirements of subparagraph (B) for such taxable and the preceding taxable year.

`(B) REQUIREMENTS- A corporation meets the requirements of this subparagraph, with respect to any taxable year, if such corporation --

`(i) produces in the United States at least 90 percent of the goods and services sold by such corporation during such taxable year,

`(ii) does not provide compensation to any management personnel of such corporation at a level of compensation which exceeds 10,000 percent of the level of compensation of the full-time employee of such corporation with the lowest level of compensation during such taxable year,

`(iii) conducts at least 50 percent of the research and development conducted by such corporation during such taxable year (determined on the basis of cost) in the United States,

`(iv) has contributed at least 5 percent of wages paid by the corporation during the taxable year to a portable pension fund for the benefit of employees of the corporation ,

`(v) has paid at least 70 percent of the cost of a standardized health insurance plan for the benefit of employees of the corporation during such taxable year,

`(vi) has maintained at all times during such taxable year neutrality in employee organizing drives and has in effect a policy to that effect,

`(vii) provides full differential salary and insurance benefits for all National Guard and Reserve employees who are called to active duty,

`(viii) has not been (at any time during such taxable year) in violation of appropriate Federal regulations including those related to the environment, workplace safety, labor relations, and consumer protections, as determined by the Secretary, and

`(ix) has not been in violation of any other regulations specified by the Secretary.

`(C) CERTIFICATION PROCESS- Not later than 90 days after the date of the enactment of this subsection, the Secretary shall establish an application and certification process to annually certify corporations as Patriot corporations. Such certifications shall be made at such time and on the basis of such materials as the Secretary determines appropriate.'.

(b) Effective Date- The amendment made by this section shall apply to taxable years beginning after December 31, 2007.

(c) Certification Allowed for Year Preceding Effective Date of Rate Reduction- For purposes of section 11(e) of the Internal Revenue Code of 1986, as added by this section, the Secretary may certify a corporation as a Patriot corporation for the last taxable year of the corporation beginning on or before December 31, 2007, if the corporation meets the requirements of paragraph (2)(B) of such section for such taxable year.

SEC. 4. TAX AVOIDANCE FOREIGN CORPORATIONS SUBJECT TO UNITED STATES INCOME TAX.

(a) In General- Paragraph (4) of section 7701(a) of the Internal Revenue Code of 1986 (defining domestic) is amended to read as follows:

`(4) DOMESTIC-

`(A) IN GENERAL- Except as provided in subparagraph (B), the term `domestic' when applied to a corporation or partnership means created or organized in the United States or under the law of the United States or of any State unless, in the case of a partnership, the Secretary provides otherwise by regulations.

`(B) TAX AVOIDANCE FOREIGN CORPORATIONS TREATED AS DOMESTIC- Any corporation which would (but for this subparagraph) be treated as a foreign corporation shall be treated as a domestic corporation if the Secretary determines that such corporation was created or organized as a foreign corporation (instead of as a domestic corporation ) principally for the purpose of avoiding being treated as a domestic corporation under this title.'.

(b) Effective Dates- The amendment made by this section shall apply to taxable years beginning after the date of the enactment of this Act .

SEC. 5. REDUCTION IN BENEFIT OF RATE REDUCTION FOR FAMILIES WITH INCOMES OVER $1,000,000.

(a) General Rule- Section 1 of the Internal Revenue Code of 1986 is amended by adding at the end the following new subsection:

`(j) Reduction in Benefit of Rate Reduction for Families With Incomes Over $1,000,000-

`(1) IN GENERAL- If the adjusted gross income of a taxpayer exceeds the threshold amount, the tax imposed by this section (determined without regard to this subsection) shall be increased by an amount equal to 4.6 percent of so much of the adjusted gross income as exceeds the threshold amount.

`(2) THRESHOLD AMOUNTS- For purposes of this subsection, the term `threshold amount' means--

`(A) $1,000,000 in the case of a joint return, and

`(B) $500,000 in the case of any other return.

`(3) SPECIAL RULE- For purposes of section 55, the amount of the regular tax shall be determined without regard to this subsection.'.
The federal preference essentially strips the voluntary compliance away given that the US government is the largest consumer in the world. Assuming these bills pass, which I think is almost a given unless the Republicans dig their heads out of their butts we are like to end up with a conference bill that:

  • Gives federal contract preference to compliant companies
  • Offers a 1% tax break to compliant companies
  • Caps CEO pay
  • Requires that R and D and production be conducted in the US in order to be compliant
  • Requires employers fund Health Insurance at a 70% rate in order to be compliant.
  • Taxes any foreign corporation that the Secretary of the Treasury decides was created to avoid US taxes as a US corporation
  • Raises taxes on families making more than $1,000,000 by 5 %.
  • practically requires unionization
None of those strike me as particularly conducive to the business environment.

In fact most seemed designed to punish businesses. I am sure that will help us climb out of a recession. Can anyone say Smoot-Hawley?

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