Evil Corporations Avoiding Taxes

[Turfgrass]

In coming days or weeks you may see some television ads showing soldiers battling some evil corporate executives. The announcer gravely tells you that ?In the sands of Iraq our soldiers risk their lives for our country. At the same time, big corporations are abandoning our country and setting up phony tax shelters in the sands of Bermuda.?

Arianna Huffington, who recently converted her head to a serpentarium, is behind this effort. She says that these corporations are ?cheating America, and they?re cheating every American taxpayer who plays by the rules.?

OK ? all of that sounds pretty nasty, doesn?t it. Evil, greedy capitalist pig corporations running away from their responsibility to pay taxes just like everyone else.

Stand by. You need to know the truth, and you sure aren?t going to get it from Arianna Huffington

First of all ? and I?m only going to devote one sentence to this ? corporations don?t pay taxes. Corporations collect taxes from their customers, employees and shareholders and merely pass them off to the government.

Now, let?s deal with the motivations behind corporations moving out of this country to places like Bermuda. I?ll give you the facts, and you tell me whether you think they are justified or not, evil or just seeking a competitive balance.

Let?s take two manufacturers. Well make our two examples auto makers. One in the United States, one in Spain. We?ll call them AmeriCar and EuroCar. AmeriCar sells automobiles in the United States and Europe. EuroCar is based in Spain and sells cars in Europe and the United States. Let?s say that Eurocar earns a profit of $5 billion on cars sold in Spain and another $10 billion profit on cars sold in the United States. AmeriCar earns $5 billion on cars sold in the United States, and $10 billion on cars sold in Spain. Each company, then, has total profits of $15 billion from cars sold in the U.S. and Spain.

So, what is the U.S. income tax bill for AmeriCar? And what will EuroCar have to pay? AmeriCar will have to pay the IRS taxes on its total $15 billion profit. Every penny of it. Also, AmeriCar will have to pay Spain corporate income taxes on the $10 billion earned in that country. EuroCar, on the other hand, will only have to pay the IRS income taxes on the $10 billion earned here. EuroCar will then have to pay the Spanish government income taxes on the $5 billion earned in Spain ? but not on the $10 billion earned in The United States!

AmeriCar is paying taxes on $15 billion in earnings to the IRS as well as taxes to the Spanish government on the $10 billion earned there. The $10 billion earned in Spain is being taxed twice .. .both in Spain and in the U.S. EuroCar, on the other hand, will pay the IRS the taxes for the $10 billion earned here, and their own government gets the income taxes on the $5 billion earned there. The tax burden on EuroCar is lower. Advantage, EuroCar.

Now ? let?s expand this a bit. Both AmeriCar and EuroCar also sell cars in England. Each car is basically the same and costs exactly the same to produce. AmeriCar has to pay income taxes in both England and in the United States on each car it sells in England. EuroCar only has to pay income tax to England .. not to Spain. This means that even though the cars cost exactly the same to manufacture, EuroCar can sell its cars in England for less and still make a good profit. Competitive advantage ? EuroCar

So EuroCar takes advantage of the favorable tax treatment it gets because it is based in Spain and prices its cars lower than AmeriCar. Soon EuroCar turns its price advantage into a huge market share for this particular type of automobile. AmeriCar starts laying off workers because it just can?t compete with EuroCar on price. Soon EuroCar has the entire business.

So ? how can AmeriCar compete with EuroCar, make a profit and not close its manufacturing facilities in the United States? Easy! Move the corporate headquarters to Bermuda! Move, as they say, off-shore. Now that the corporate headquarters are in Bermuda AmeriCar pays income tax according to Bermuda law. The United States collects income taxes on all cars profits earned in the U.S. England and Spain collect income taxes on profits earned in those countries. AmeriCar is once again in a competitive position.. and American jobs are saved.

Now --- you tell me. Why is it so wrong for AmeriCar to move off shore? The United States government still gets its income tax on all profits earned in America. Isn?t that the way it should be?

Know this. The United States is the ONLY industrialized nation that compels corporations organized under its laws to pay income taxes on worldwide earnings. This means that every international business based in the United States is at an immediate competitive disadvantage with every similar business located elsewhere. Can someone please explain to me on what level does this make sense? And while you?re at it, see if you can tell me what Arianna Huffington has been sniffing.

 

[BobbyBlueChip]

There are so many inaccuracies . . no, falsehoods in the above statement that it would take even a longer-winded rebuttal to show you how wrong you are. Where did you get this from?

 

[djv]

Well if we can get enoguh companies to move out of the country.
Well at least we will still have our bars and pizza joints. I say all companies that run an hide we should boycott like were starting to do with the French. Nope cant do that we may have more folks lose jobs. We already have to much of that. Guess were just going to have to pay more ourselfs. That way those companies can make more bucks.

 

[Turfgrass]

Helping U.S. firms compete


By Daniel J. Mitchell



It would be easy to resent the World Trade Organization right now. Here we are, trying to get our economy to grow, and the WTO comes along and says the European Union gets to impose a $4 billion annual tax increase on American companies.

This is because of a WTO ruling that claims U.S. tax law gives domestic companies an impermissible "subsidy" because our taxes on export-related income are "too low." The EU now has the right to impose more than $4 billion in taxes on our exports unless we repeal this alleged "subsidy."

That puts Congress in a difficult position. If lawmakers repeal the "impermissible" sections of our tax law, American companies will see their taxes go up. If lawmakers leave the law unchanged, the European Union will hit American exporters with the $4 billion in taxes. It sounds like a no-win situation.

But it doesn't have to be. Lawmakers should realize the WTO has handed them a golden opportunity to reform certain parts of our tax law that make it hard for U.S. companies to compete abroad. In effect, we can turn high-tax lemons into low-tax lemonade.

Here's the problem: Under current law, companies based in America aren't allowed to compete on a level playing field with their foreign-based competitors. In part, this is because our corporate tax rate of 35 percent exceeds the rate found in most other nations. And if you take state corporate taxes into account, the United States may have the highest corporate tax rate in the developed world.

But it gets worse. The United States also taxes companies on income earned in other nations, even though that income already has been taxed where it was earned. Most other nations, by contrast, tax companies only on income earned inside their borders, a common-sense approach known as "territorial taxation."

America's high corporate tax rate and "worldwide" system of taxation are a bad combination. For example, an American-based company operating in Ireland is at a competitive disadvantage since its profits are subject to the 35 percent U.S. corporate income tax, as well as Ireland's 121/2 percent corporate tax. A Dutch firm, by contrast, only pays Ireland's low corporate tax rate of 121/2 percent.

The U.S.-based company supposedly gets a credit for taxes paid to Ireland, so the tax rates aren't cumulative. But even if the tax credit operates perfectly, the U.S. company's tax burden is about 3 times larger than the one the Dutch company faces.

This system puts U.S. companies in a terrible position. Indeed, this is why some have chosen to "recharter" in jurisdictions such as Bermuda and the Cayman Islands that have better tax law. Rechartering allows them to keep their jobs and headquarters in the United States, but because, technically, they're no longer based in America, they don't have to pay a second layer of tax on overseas income.

Re-chartering may be the best response to a bad situation, but wouldn't it be nice to fix our tax laws so U.S. companies don't have to go through so much trouble to get the same tax treatment as their foreign competitors? That's what would happen under a bill introduced by the chairman of the tax-writing committee in the House of Representatives, Rep. William Thomas, California Republican. In his view, we need to improve the competitiveness of U.S. tax law ? not treat companies as cash cows for greedy government.

But some politicians want to go in the wrong direction. They would rather punish companies that "recharter" by denying them the right to bid on government contracts. But this blame-the-victim approach ignores the harmful effect of U.S. tax laws and would penalize companies that try to protect their workers and shareholders.

Fiscal protectionism isn't the answer. Bad tax law caused the problem, and good tax reform is the solution. Congress should use the WTO decision as a long-overdue excuse to fix our tax code so that American companies ? and their workers ? are better equipped to compete in the global economy.


Daniel J. Mitchell is the McKenna senior fellow in political economy at the Heritage Foundation.

 

[fatdaddycool]

You kow what Turf, that is by far the most unbelievable corporate propaganda and repulican bullshit I have ever read.

Biggest problem with your story.....Americar is still COLLECTING TAXES FROM ITS CUSTOMERS AND EMPLOYEES, but no now longer has to pass them on to the government. Save american jobs.

You know what saves American Jobs turf? Hiring United States citizens to do the work, nothing more nothing less. Your article is irresponsible, and completely inaccurate. You're right a company that posts a 15 billion dollar profit is getting KILLED by taxes. I don't know how they will make it next year with only say 11 billion. Jesus.

 

[Turfgrass]

FDC you're going to just love this one then.

Exporting jobs
Walter Williams (archive)


August 20, 2003 | Print | Send


Among George Orwell's insightful observations, there's one very worthy of attention: "But if thought corrupts language, language can also corrupt thought." Let's look at a few examples of corrupted language, thought and information.

Pretend you're a customs inspection agent. There's a cargo container awaiting a ship bound for foreign shores. You ask the shipper, who works for a big corporation, what's in the container. He answers, "It's a couple of thousand jobs that we're exporting overseas to a low-wage country."

What questions might you ask? How about, "What kind of jobs are in the container?" or, "Are they America's high-paying jobs?" Most people would probably say: "You're an idiot! You can't bundle up jobs and ship them overseas!"

A job is not a good or service; it can't be imported or exported. A job is an action, an act of doing a task. The next time a right- or left-wing politician or union leader talks about exporting jobs overseas, maybe we should ask him whether he thinks Congress should enact a law mandating U.S. Customs Service seizure of shipping containers filled with American jobs.

Let's turn to the next part of the exporting jobs nonsense, namely that corporations are driven solely by the prospect of low wages. Let's begin with a question: Is the bulk of U.S. corporation overseas investment, and hence employment of foreigners, in high-wage countries, or is it in low-wage countries?

The statistics for 1996 are: Out of total direct U.S. overseas investment of $796 billion, nearly $400 billion was made in Europe (England received 18 percent of it), next was Canada ($91 billion), then Asia ($140 billion), Middle East ($9 billion) and Africa ($7.6 billion). Foreign employment by U.S. corporations exhibited a similar pattern, with most workers hired in high-wage countries such as England, Germany and the Netherlands. Far fewer workers were hired in low-wage countries such as Thailand, Colombia and Philippines, the exception being Mexico.

The facts give a different story from the one we hear from the left-wing and right-wing anti-free trade movement. These demagogues would have us believe that U.S. corporations are rushing to exploit the cheap labor in places like the Democratic Republic of the Congo, Rwanda and Ethiopia. Surely with average wages in these countries as low as $10 per month, it would be a darn sight cheaper than locating in England, Germany and Canada, where average wages respectively are: $12, $17 and $16 an hour.

Let's look at a few of the reasons why some U.S. corporations choose to carry their operations overseas. Much of it can be summed up in a phrase: less predatory government and the absence of tort-lawyer extortion. While foreign governments can't be held guiltless of predation, their forms of predation might be cheaper to deal with than those of our EEOC, OSHA, EPA and IRS. Plus, tort lawyer extortion and harassment in foreign countries is a tiny fraction of ours. With each tort lawyer extortion and expansion of predatory regulations at federal, state or local levels of government, foreign operations become more attractive to U.S. corporations. Free trade helps make those costs explicit. American workers are just about the most productive in the world -- however, our government and legal establishment have reduced that productive advantage.

It'd make far more sense for Americans to start attacking the real sources that have contributed to making foreign operations more attractive to those at home. It's more effective than caving to the rhetoric of leftist and rightist interventionists who mislead us with slogans like, "How can any American worker compete with workers paid one and two dollars an hour?" when in reality our real competition is mostly with European workers earning a lot more.

 

[StevieD]

Those taxes might cut into their bonuses.

 

[Turfgrass]

Don't forget stockholders earnings.

 

[djv]

Like the jobs lost to workers who made first calls and follow ups for there companies. These all come from places like India, Malaysia. They have these huge rooms full of gals and guys just sitting there makeing those calls for about 3 bucks ahour. They also do some minor paper work and computer fileling from those places. Hard to tell how many 1000's of jobs were lost. I dont think it's all about taxes.

 

[Rudy]

It's not just low-paying jobs that are going away -- some high-paying ones are moving offshore too, like software engineering, medical claims processing, billing and many others that are keyboard intensive. Even a couple investment banking firms are using offshore job shops for analyst work.

All things being equal, American companies would rather hire American workers. There clearly are some diseconomies of having a far-flung labor force. But everytime the socialist wannabes increase the cost of having employees through direct or indirect taxes, it moves a few more jobs past the tipping point. And then the knuckleheads complain about business being "greedy." It's the insatiable appetite for giveaway spending that's greedy.

It also happens even on a local basis. My company is in downtown San Francisco and the city instituted a 1.5% payroll tax a couple years ago. No, it doesn't sound like much. But that's about the equivalent of our rent going up $3/sq foot per year, and it makes moving out of SF look increasingly attractive. And Bank of America did just that, moving thousands of jobs to Charlotte. So now what will SF have to do to get the jobs back? No answer, but NOTHING positive will happen on that front as long as the socialist crowd is in charge. And don't even get me started on the California budget mess and why the recall of the governor is such an important first step.

 

[StevieD]

Socialist crowd is in charge? In charge of what? Last time I looked the Republicans controlled the White House and the congress? Sorry if corporate welfare isn't all you would like it to be.

 

[DOGS THAT BARK]

Its so amusing. The left wants to whine about corporate america making profits and then whine when they can't and say adious U.S.

I am afraid it will be too late till it dawns on the "its not my fault" liberals that they need corporate america to fund there welfare programs, pay for the illegal aliens,line the pockets of class action attorney ect.

It is blantantly obvious the left could not survive without the right----and the right would prosper beyond belief without the left.


Would anyone dare to argue that point gentlemen?

 

[djv]

DTB only thing wrong with that is your far right. Who is going to control them. If they could do it they would bring back the horse and carrage. And the only liberals spending money at this time for Wash DC are called republicans. They been in charge the last 6 years maybe 8 I lost count. I can tell you im as mad as hell at them as I would be if it was the Liberals. It's got to stop. We need a good third party so dam bad in this country to try and keep the other two honest it's a shame. We should have caught on when we saw all the money waisted on these election. Those folks worry more about elections then the good of the country. At least it sure as hell looks that way. Wheres a Eisenhower when we need one.

 

[StevieD]

The only ones whinning and crying here are from the right who can't stand to pay their fair share. They will rape the workers and the country for all it is worth but when it comes to pay the tears start. They invision the world as the haves and the have nots. They don't like to think about the ones stuck in the middle. The ones who never took a dime of welfare and pay our taxes. We work for our money and do not cry about it. It is the rich who always cry when it comes time to pay for the things they use. It would be amusing if it wasn't so pathetic.

 

[DOGS THAT BARK]

Mr Stevie
Do I have to put up the demographics charts "again" of the voters by class in this country.

Its the middle class you keep speaking of that are the conservatives.The farmers,the miltary and more importantly the tax payers.
How in the world do you get middle class out of those that voted 90% plus democratic ie minorities,gays,welfare recipients.
Less than 2% of U.S. is considered rich,where do you think the rest of the votes come from?

While your pondering that did it EVER occur you that all these class actions suits ie huge settlements that you all so gleefully cheer as victories against big bad corporate America,cost jobs.
Or did it ever occur to you that it just might might possibly raise the cost of products they make in the future,maybe even contibute to the cost of rising health care.

--and while the Eddie Haskels of this world have lead the sheep to believe they are looking out for them let me give you a few examples of who really profits.

Southwestern Bell InLine subscribers recieved coupon worth
$15 credit in lawsuit-attorneys pocketed 4.5 million in fees

Dell Computer Class members received a $13 rebate toward the purchase of $250 in new computer equipment or the right to a $6 rebate next year ? Attorneys $5.8 million in fees.


In escrow abuse case recipients received 23 cents a year--are you getting the picture yet.

Maybe,just maybe, there will be some time in your life when you see big settlements it will dawn on you if you are a tax payer or buy consumer products that is is YOU that are footing the bill and feeding the sharks.

additional reading. http://www.tala.com/how.html

 

[StevieD]

DTB, I don't quite understand the jump from taxes to lawsuits. I do not wish to debate lawsuits because I am not versed in them. Like you I find many of them to be a waste of time and money. In talking about lawsuits we have to debate the merits of each one not the whole concept.
As far as many middleclass voting republican you are correct. Many have been hoodwinked by the media into thinking they are helping themselves. Many have bought into the trickle down theory. I have not.
A crooked politician is no better or no worse than a crooked CEO. who is no better than someone abusing the welfare system. It works both ways.
For instance Dubya was not against Texas raising taxes to build a 200 million dollar stadium and hand it over to the Texas Rangers baseball team. Somehow, to you, that type of corporate welfare is ok. That team can afford to pay its players millions of dollars a year and still not win anything but they need to steal from the public to build a stadium that will be used to inhance their profits.

 

[Rudy]

Ideally, we would have the limited government role that the founders designed, which would minimize the tax burden we all must share. I have no problem with the high level of defense spending because it will protect our freedoms from tyranny for the next generations. But the nanny state has progressed because voters as a whole have asked government to take an increasingly bigger role over time. It's wrong, in my opinion, but it is reality. I think we all support some level of a social safety net, but too many people have an entitlement mentality. It has also crowded out the role of private charities and co-opted many into having their paws out for government dollars too.

The further the country moves back toward conservative principles of limited govenment and lower taxation, the less of a problem creeping socialism will be over time. Fortunately, it's happening as we watch and is creating the shrill panic and squealing such as our pal Stevie spouts.

My complaint with the socialist viewpoint is that they have such a warped view of government's role and the "fairness" of taxation. I'm all for paying my fair share, but it's certainly not fair that the top 10% of taxpayers pay 2/3 of all income taxes. Yes, lower income people pay payroll taxes and sales taxes, but even those have offsets from the earned income tax credit. And the left is trapped and can't move toward a more-logical, broader tax base because it would offend their constituencies.

Government spending money is acceptable if it is for productive result. The Texas stadium is a fine example of that -- it certainly will pay for itself over time because it generates revenue and jobs. Would much rather have that than bloated bureaucracy, incentive-killing payments to unproductive people, and thinly disguised bribes to special interest groups to buy votes in order to retain power. Both parties are guilty, but we all know that the Republicans are not the driver most of the time. It will happen less as their power base is solidified in the next election. And that's why the level of invective from the left is incrasing daily. It's fun to watch becasue it makes me further confident that the good guys are not only winning but also covering the spread.

 

[StevieD]

As an example of how the right looks at taxes and cororporate socialism. Dubya buys into the Texas Rangers for $600,000. Thru some government help the state pays for 2/3 of the stadium. Dubya's share of the Texas Rangers jumps to a worth of $15,000,000. Now the right cries and whines because the poor guy has to pay taxes on his profit! Which he wouldn't have made in the first place had the state not pitched in and given them the land and footed 2/3 of the cost of the stadium!
But you don't hear the right complain of this type of corporate welfare but let a welfare mother try to feed her kids and they jump all over it.
Of course some people take advantage of the system. They are crooks whether they are getting food stamps or land grants they are still crooks. But the right only wants to confront the crooks on the bottom. I want to confront and stop whoever is misusing the system.
Let me ask you this Rudy, at what dollar amount does it stop being stealing and become a business deal?

 

[Turfgrass]

As an example of how the right looks at taxes and cororporate socialism. Dubya buys into the Texas Rangers for $600,000. Thru some government help the state pays for 2/3 of the stadium. Dubya's share of the Texas Rangers jumps to a worth of $15,000,000. Now the right cries and whines because the poor guy has to pay taxes on his profit! Which he wouldn't have made in the first place had the state not pitched in and given them the land and footed 2/3 of the cost of the stadium!

NO this is not an example of Corporate anything. One man does not a corporation make. Don't let your hate of the man cloud what I'm talking about. I'm not bitching about walfare or any social programs that you might think are great. I'm talking about why the folks that pay the bulk of our taxes that pay for those programs are going off shore. So save your example of Dubya for a later debate.

Under current law, companies based in America aren't allowed to compete on a level playing field with their foreign-based competitors. In part, this is because our corporate tax rate of 35 percent exceeds the rate found in most other nations. And if you take state corporate taxes into account, the United States may have the highest corporate tax rate in the developed world.

But it gets worse. The United States also taxes companies on income earned in other nations, even though that income already has been taxed where it was earned. Most other nations, by contrast, tax companies only on income earned inside their borders, a common-sense approach known as "territorial taxation."

America's high corporate tax rate and "worldwide" system of taxation are a bad combination. For example, an American-based company operating in Ireland is at a competitive disadvantage since its profits are subject to the 35 percent U.S. corporate income tax, as well as Ireland's 121/2 percent corporate tax. A Dutch firm, by contrast, only pays Ireland's low corporate tax rate of 121/2 percent.

That is the problem. That's why they are going off shore.

Now you tell me whether you think they are justified or not, or just seeking a competitive balance. Buisnesses are in buisness to make money, that's what they do.

Now I want them to stay, but I also feel that they shouldn't be taxed so heavily that people lose jobs and prices go sky high. That's what I'm saying. Hope that helps.

 

[StevieD]

Excuse me but the Texas Rangers are a corporation and a big business and the people who profit and profited from them are tax payers so the example does fit.
What we have here is an argument on what is fair. Of course taxes should be lower but what are you going to cut, that is question.
Or are you making the arugument that corporations should be taxed at a lower rate, that in turn would increase profits, which would mean they create more jobs, which in turn would create new tax revenue? If that was the case that would be great but it is not what usually happens.