When Congress returns after the Labor Day weekend, a lot of attention will be focused on President Obama’s proposed health insurance reform.  But tax issues are going to arise very soon – how could they not (see: cost of health insurance reform + existing deficits) – and you can expect it to have some potentially serious implications for some of the biggest names in tech…including, awkwardly enough, many of Obama’s biggest tech industry supporters. 

Earlier this year, the administration put forward a proposal that would change some tax rules that apply to US companies with operations abroad—a category that particularly includes the tech sector, which will be watching forthcoming decisions closely.

The administration is calling for a number of changes.  One would affect rules governing the ability of US companies to claim foreign tax credits.  The one that has the tech firms and groups most up in arms, though, was the May proposal to, as The Economist said, “limit how much companies can defer tax payments on their foreign earnings.”  For instance(s)…

• Microsoft CEO Steve Ballmer on reaction if the proposal goes through: “It makes U.S. jobs more expensive,” [Microsoft CEO Steve] Ballmer said in an interview. “We’re better off taking lots of people and moving them out of the U.S. as opposed to keeping them inside the U.S.”

• Symantec’s John Thompson “called the Obama proposals “counterintuitive” to the administration’s other stated goals of fostering an innovation-oriented economy.”

• Tech America (tech industry trade association) reportedly described deferral at a news conference as “the linchpin of American competitiveness.”

• Tech America also put out a paper titled “U.S. High-Tech Jobs Depend on Overseas Investment” [PDF], arguing that deferral relief is “crucial to the viability of the U.S. Tech Industry,” including some “small- and medium-sized technology companies [which] earn as much as 97 percent of their revenues overseas,” meaning that they could be significantly, negatively impacted by a change to deferral, too.

• Tech America [PDF] also says Intel “employs 45,000 people in the United States and manufactures 75 percent of its products here.”  However, 80 percent of Intel’s revenues are generated abroad.

• The Tech CEO Council says “foreign investments and jobs do not cut into investment and jobs at home, but rather increase them. As a result, the current proposal to substantially restrict “deferral” would end up reducing American jobs and investment and could impair our economic recovery.”

• The Business Software Alliance — Adobe, Apple & Cisco (to name just a few members from near the front of the alphabet) — has said this “would create an incentive to move operations out of the United States or to withdraw from foreign markets. Either way, it’s a lose-lose situation for American workers and taxpayers.”

In a digital economy, over there is over here.

As Congress moves into these tax issues, I would expect to hear a lot more on this.  Much of the tech industry has rallied behind Democrats on policy so far, but that calculation may change if Congress decides the beast must be fed on the vitality of the tech industry.

Disclosure: I also work with Arts+Labs, which includes some tech industry organizations.  However, my work does not involve this issue, and I have never discussed this issue with them.