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Spot the tax increase on multinationals

The fierce debate over how to tax U.S. multinationals has found its way into an FAA reauthorization bill gutted to become a vehicle for a bill that would pay for education jobs and state Medicaid programs.

Such is life when you're a giant U.S. corporation and extracting more taxes from you by tweaking the convoluted international tax code has become a go-to method for lawmakers to raise money and pay for programs. In May, Democrats offered nearly identical provisions to pay for the jobs bill, but lawmakers wound up spinning them off into a separate tax extenders bill (along with my other favorite, the carried interest tax).

Now they're attached to this bill giving states $26 billion to pay for state health and education programs. The latest set of tax measures would cost multinationals $12.5 billion, according to Anne N. Mathias at Concept Capital, by limiting the amount of credit a U.S. company can claim for taxes paid to other governments.

This would affect tech and pharmaceutical companies with far-flung global operations, such as Pfizer, Merck, Intel and IBM.

The measures are controversial because some Democrats, including President Obama, think that by changing the foreign tax credit system for multinationals, they can limit the number of jobs these companies ship overseas. Others just frown on the extensive tax arbitrage that companies engage in to lower their tax bills.

Of course, this being the Senate, there's been a delay this week on the state Medicaid bill. Lawmakers balked yesterday when the Congressional Budget Office estimated that the bill would add nearly $5 billion to the budget deficit. A vote is expected Wednesday.

Mathias pointed out to me that by stripping the extenders bill of the multinationals provision, this only puts more pressure on the carried interest provisions to raise more money -- bad news for private equity and venture capital partners.

By Jia Lynn Yang  |  August 3, 2010; 12:19 PM ET
Categories:  Carried interest , Corporate taxes , IBM , Intel , Merck , Pfizer , Tech  
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