Perhaps after watching the abysmal game between North Carolina and Kentucky, some of you may have stayed on the channel and watched the 60 Minutes report on companies that have taken their operations out of the United States and deposited them in more tax friendly countries. I listened to the report with interest. As many of you know, I have for years been saying that the United State’s insistence on raping corporations in tax rates is one of the primary drivers of unemployment and fiscal difficulty in our country. True to form, the side supporting the such tax rates immediately fell back to an emotional appeal. But it falls on deaf ears in my case as I ask myself, “When will the United States Government wake up and realize that they cannot control the world and that they are committing suicide by continuing to arrogantly think that they can?”
Let’s just be honest and blunt. Over the last few decades the United States has watched as manufacturing migrated abroad, followed by the service industries, in an effort to limit expenses so that more revenue was realized as profit instead of liability. I understand that there are several different ways that this can happen. There have been some companies that moved abroad for cheaper labor. I am not talking about the limited few who went to “sweat shops” in China or elsewhere. We know they exist and we understand that many find their position morally reprehensible, not because they sought cheaper labor, but because they didn’t adhere to a moral standard in acquiring it.
But the majority of organizations didn’t do that. They merely moved to where labor was cheaper. They provided a relatively safe working environment and paid the normal labor rates for the region they operated in. I personally think that the unions played a large part of causing this form of coercion to move abroad. But unions are a different discussion for a different day.
What we are talking about today is the fact that the United States government, in its zeal to bring in more money, has continued to levy unwarranted high levels of taxes on businesses in the US. They do it for the same reason that we now live with roughly 70% of our earnings, on average, going to the government in some form of tax or levy (Income tax is just the largest tax, but far from the only). They do it because it is the only way to fund the corruption, to fund the ever-increasing nanny state, and to centralize the power at the federal level where it can command and control everything.
And the real problem is that the United States government is doing so at a higher rate than the rest of the world. Japan is set to lower their taxes on businesses, which will vault the US to the number one status as the highest taxes on businesses of the 30 countries in the Organization for Economic Cooperation and Development (OECD) (a collection of the most economically developed countries in the world). 35% at the federal level, which with state corporate taxes added in takes us over 39%! The average corporate income tax rate in the OECD is about 25 percent. The United States’ rate is almost 15 percentage points higher. Of the 30 countries in the OECD, 27 of them have cut their corporate income tax rates since 2000. By standing still, the United States has fallen behind.
And to think, this is not enough for some folks who consistently whine about corporations not being taxed enough.
As a result, corporations are leaving in droves. Some of the largest businesses in America have moved significant portions of their operations overseas. Microsoft, Cisco, Google, Facebook, Tyco, General Electric, Accenture, IBM, Morgan Stanley, AT&T, Disney, TimeWarner, and others have all moved significant amounts of their business to avoid the business unfriendly environment of the USA. The aforementioned 60 Minutes segment had an interview with the CEO of Cisco, John Chambers. He noted that the tax rates in the US are insane. The government forces companies to resort to leaving in a world where the rest of the countries out there (including our neighbor to the North!) are lowering tax rates to entice more businesses to move to them.
Of course, Leslie Stahl who was conducting the interview ended the clip by making Chambers look like he was evil, by stating that it sounds to her like he is asking for some sort of special favor. No, Ms. Stahl, he asked that corporate tax rates in America be brought down to levels more in line with the rest of the developed world. Or the money stays abroad…
Because what is worse is that these organizations who move their operations, as a result of a 2004 law passed by Congress, would still have to pay the US taxes if it is brought back into the US. But when Cisco moves its headquarters to Ireland, any money they make in the rest of the world cannot be touched by the US government. But it also cannot come back into the US without being taxed. Which means that money made overseas will STAY outside of the US. Chambers admitted that Cisco alone has $43 BILLION abroad which will never come back to the US for this reason. Estimates are that the total amount out there is $1.2 Trillion. American companies that would love to invest in the US economy, create jobs in the US, and help solve the economic problems in the US.
But they are not going to do it so long as they lose an additional 15% of their revenue in doing so.
The result is that a country like Ireland, with a 12.5% corporate tax, has roughly 600 American companies there that employ a little over 100,000 people. Boy it sure would be nice to have those 100,000 jobs created here in the US, wouldn’t it?
For those who read Atlas Shrugged while engaging their brain and understanding that it was a fictional idealized storyline meant to spawn critical thought, they recognize that what is happening is exactly what Rand wrote about when describing how so many corporations were packing up and moving to Colorado in order to get better tax rates. As a result, a character in the NorthEast who is watching a supplier leave the area proclaims, “there ought to be a law…” outlawing the move to Colorado. Eventually there is. And our story today has its own Wesley Mouch to attempt yet another such law.
Democratic Congressman Lloyd Doggett is interview by Stahl and he laments that no matter what laws Congress can come up with, the corporations can find a way around them. But that doesn’t stop him from proclaiming yet another piece of legislation that will further alienate the US from businesses. He is pushing a bill that will make it illegal for corporations to move corporate offices to overseas locations, thus avoiding the crippling US tax rate. He acknowledges that they will avoid this as well, by simply moving everything, not just a corporate office.
Great job Lloyd, they will take the jobs away now too. Of course Doggett did the quintessential political move, invoking words meant to make an emotional appeal rather than a logical one. He stated that these companies have “renounced their citizenship and begun saluting a foreign flag.” How very Joseph McCarthy of you Mr. Doggett. Next we will get, “Are you now, or have you ever been, a member of the capitalist party…” Also sprinkled throughout the segment were statements about how these immoral companies are leaving America high and dry when the deficit is so high and the economy so fragile.
I have news for you. Those companies didn’t make the deficit that high. The government did. An entitlement mentality did. And they have no “moral obligation” to stick around and bail out a government that has done nothing but cripple them economically if they stayed. You cannot compete over the long term when your competitors are paying 15% less in taxes, enabling them to put 15% more into finding ways to beat you.
The bottom line is this: So long as the United States insists on keeping corporate taxes higher than the rest of the world, companies are not going to be investing their money here. And that means that they won’t be creating jobs here. It means they won’t be contributing to the economy of the United States. They will instead continue to boost the economies of other countries. You cannot stop them. And the fact is that you have no right to. The answer is to scale back government in a very big way and stop pretending that the government is entitled to so much of what they don’t create. Corporations don’t claim they should pay no taxes. They claim that the US is not competitive in setting their tax rates.
Our economic problems are being caused by the very federal government that many out there are relying on to solve the problem. The sooner people realize that the better our chances to recover and get things fixed. But try telling that to the federal government. You can report it to the Ministry of Truth. It’s right next to the ministry of Peace, which is busy in Libya at the moment.
The closer we get to being a socialist/fascist/communist environment for business, the weaker our economy gets. Hence the title of the article. Realistically, the US government is cutting its own throat, while claiming to all of you that it is just shaving.