Every so often, we read headlines like this one - GE, Pfizer, Microsoft, Apple, And Other Majori US Corporations Are Parking More Cash Abroad To Avoid Paying Taxes.
Then we read about the HUGE amounts of money involved:
For example, the Jedi master of avoiding U.S. taxation, General Electric Company (NYSE:GE), increased its tax-free cash accumulation to $108 billion, up from an estimated $94 billion in 2010. Microsoft Corporation (Nasdaq:MSFT) increased its stockpile to $61 billion, up 36 percent from 2011 and up from $30 billion in 2010. Apple Inc. (Nasdaq:AAPL) raised its ante to $40 billion, up 73 percent from 2011.
Sixty of the country’s largest nonfinancial corporations kept $166 billion in cash outside of the U.S. last year, shielding more than 40 percent of their profits from taxes, according to a report in Monday’s Wall Street Journal. And that’s from total overseas earnings of $1.3 trillion, up 15 percent from 2011.
A separate analysis of 83 of the largest nonfinancial corporations found that companies increased by $183 billion their foreign-based cash accumulations, representing a 14.4 percent rise from 2011, according to Bloomberg. Microsoft, Apple and Google Inc. (Nasdaq:GOOG) together hold $134.5 billion in cash abroad.
These articles are supposed to make you think those big powerful corporations are getting away with bloody murder, by writing things like this:
...for every dollar a U.S. nonfinancial company held inside the U.S., it held three dollars abroad.
It sound like our big corporations are a bunch of tax cheats. Outrageous, right ???
No. In most cases, it's not outrageous at all, once you realize what's really going on.
Companies like GE, Pfizer, Microsoft, and Apple don't just sell products in the USA. They sell products all over the world. World GDP is somewhere in the vicinity of $70 trillion. The GDP of the USA is $15 trillion. There is a huge market outside our country, and we'd be idiots to pass it up, so our corporations have subsidiaries all over the world, and most importantly, THEY PAY TAXES ALL OVER THE WORLD. Foreign subsidiaries of U.S. corporations generally pay taxes in the country where their profits are earned. The fact that they don't pay taxes in the USA on foreign earnings on top of that doesn't mean they are avoiding taxes. It just means they aren't being doubly taxed. Most countries don't tax foreign corporate earnings at all, but the U.S. does (because apparently, we like to put our corporations at a competitive disadvantage). There's one catch. The current U.S. tax code defers taxation on foreign profits UNTIL those profits are moved back home. Thus, the corporations are incentivized to keep the money offshore forever to avoid the huge tax bite. It's perfectly legal, but it is not ideal for America. We'd rather have those dollars in this country. We'd rather have those corporations build new plants in this country, and we'd rather have them hire new workers in this country. Our current tax code actually encourages offshoring. Not very bright, but since when has our government been very bright ? Usually, I think the government must be TRYING to screw things up on purpose, because nobody could foul things up so badly by accident.
Btw, this might be what Obama is talking about when he says we give companies "tax breaks for shipping jobs overseas", though it's hard to tell what Obama is talking about sometimes. Whatever Obama is talking about, there is no tax break for shipping jobs overseas, but there's certainly an incentive to do it.
So, what do we do about this situation ?
In my opinion, we should stop taxing corporations completely (except for a windfall profits tax to prevent hoarding), in order to bring new plants and jobs here in droves, which would end our unemployment problem, our offshoring of corporate profits problem, and increase federal revenue via all the new employed taxpayers we created...but I'm just a crazy old libertarian. What do I know ?
Instead of doing something that will actually make a difference, we have the stupid Republican plan and the stupid Democratic plan (link).
First, the stupid Democratic plan:
Obama’s plan would reduce the corporate rate to 28 percent and would force companies to pay tax on their foreign income to the IRS annually. There’s one exception: If a company is already paying a certain minimum tax rate in a foreign country, then companies would not owe any U.S. tax. But the president hasn’t spelled out what that minimum rate would be.
This would basically change nothing, except to tax foreign earnings a bit more. It won't help create jobs for Americans. Obama says his plan is revenue neutral, but the details are murky.
Next, the stupid Republican plan, via the former Romney campaign:
Romney and Ryan want to lower the corporate rate to 25 percent and install a territorial tax system, in which foreign earnings aren’t taxed at all when they return to the U.S. That approach “will actually encourage American companies to bring back overseas profits where they can be used to hire new employees or invest in new plants at home,” Romney spokeswoman Andrea Saul tells me.
This is only slightly better than Obama's plan. I doubt dropping the corporate tax rate to 25% will accomplish much. Many countries have lower corporate tax rates than 25%, so where'e the incentive for corporations to repatriate ?
That's it for today.
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