What is wrong with American companies.....let us/all count the ways...

[BSAM]

Start here: www.fairtax.org

I believe in transparency in government and transparency in the tax system.

I believe in a balanced budget; not a government who taxes and spends like drunken sailors.

I believe that the people and businesses aren't taxed too little; but that the government spends too much.

Please don't insist that anyone or any business owes more money to the slave masters. They don't.

More taxes? I don't think so.

We don't owe our lives and treasures to the United States government. Yet, of course we need a tax system to properly run the country.

The system needs a complete overhaul.

 

[macroman]

Quote from olias:

exactly. that's how any of us would feel in that situation. That's how the rich feel too. That's how the middle class feels too for that matter. That's how the poor feel when you talk about their money.

these companies get protection from US army and CIA overseas. As they dont pay taxes, I predict these services will be cut soon (because quoted text above). These companies will become homeless & without protection. It is rough out there without protection, sooooo many people want money (tax) from you. Anti us sentiment doesnt help eithher

Sure not a growth story.

 

[Ed Breen]

The reality of a U.S. Company doing business overseas is that it has to compete for that business with other International Companies and local companies in the foreign country. We are not talking about U.S. Companies that source manufacturing in China, either by contract or by thier own operations, and then import product into the U.S. Such companies pay U.S. tax on all income from sales in the U.S. The issue arises when a U.S. company sites facilities in a foreign country in order to sell to that country, or some other regional country...say a Singapore location to make product and sell product in Singapore, Malaysia, Indonesia and the Philippines. Say the company makes parts for oil facilities and operations in those countries. Makes the parts in Singapore and sells them there and in the region. It doesn't sell any parts or service to the U.S. Such a company, while owned by a larger U.S. company will be subject to Sinapore income tax on all of its earnings and perhaps some tax will be paid to the other countries it sells to, according to tax treaties with Singapore. The U.S. tax code then gives the Singapore subsidiary the choice of also paying U.S. income tax on all earnings and getting a credit for the foreign tax (In the simplist sense they pay 35% to U.S. and get credit for 17% they pay to Singapore); or so long as they agree not to invest any profits earned by the Singapore Co. in the U.S. and they invest or retain those profits for use in Singapore, they will not be levied the U.S. tax until they repatriate the funds, but if they elect deferral they must pay the full 35% on all repatriated funds without regard for the tax they pay to Singapore.

So, this is money that earned by operations entirely outside the U.S. that do not sell products to the U.S., and the company can choose to pay 17% tax instead of 35% tax (and then another 35% of the profits are distriburted to shareholders), but it can only pay the lower rate if agrees never to invest any of its profit capital back into the U.S.

Only an idiot could design a structure like this. The U.S. is the only major OECD company that has this sturcture. Most OECD companies do not charge any tax on earnings from subsidiaries on products that are not importated to the domicile country. Most countries are glad to have foreign own capital flow home to support domiclie operations.

Do You realize if you move to tax all these foreirn earnings and operations at the double taxation and outrageous U.S. rate that these businesses will simply be spun off to foreign domicle incorporation or sold to foreign owners? If they are not spun out they will be driven out of business becuase they will have lower after tax earnings and their cost of capital will be higher than their competition.

If you raise taxes the way proposed in that simple minded demand calling this some sort of immoral tax evasion you will end up with weakened U.S. companies. stronger foreign companies, less diverse operations, and lower tax revenues for the U.S., all around.

 

[limitdown]

Quote from trendlover:

Quote from limitdown:

"Simply put if the corporations don't pay their existing taxes and repatriate their overseas profits then the same malaise that exists will continue instead of doing their moral and social obligation and part in contributing to the economy. In fact its in their own best and self interests. What continues to be put at risk are the sound state of the nation."

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People will call you the communist if you talk about "social obligation" and "sound state of the nation"

my bad, thanks for slapping me around and reminding me to take a corner in either the liberal or right or left or just-don't-care-no-more crowds.... (humor)

( I love this: Exsqueeze me...)

I am not so eloquent of words, and hence, your correction is appropriate,

perhaps how these collective minds stated same concept are much more better and to your liking (humor):
http://www.fiscalcommission.gov/sites/fiscalcommission.gov/files/documents/CoChair_Draft.pdf

--- page 3, now if that doesn't meet same definition of .......ist (I have such a hard time with labels as such, and as you stated)....

(cheers)


I did say however, if one doesn't approach this discussion from an academic neutral perspective it would get lost in the often bally-hooed labels and smear campaigns.....

 

[trendlover]

Quote from limitdown:

my bad, thanks for slapping me around and reminding me to take a corner in either the liberal or right or left or just-don't-care-no-more crowds.... (humor)

( I love this: Exsqueeze me...)

I am not so eloquent of words, and hence, your correction is appropriate,

perhaps how these collective minds stated same concept are much more better and to your liking (humor):
http://www.fiscalcommission.gov/sites/fiscalcommission.gov/files/documents/CoChair_Draft.pdf

--- page 3, now if that doesn't meet same definition of .......ist (I have such a hard time with labels as such, and as you stated)....

(cheers)


I did say however, if one doesn't approach this discussion from an academic neutral perspective it would get lost in the often bally-hooed labels and smear campaigns.....

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You think I am saying something is wrong with your words? No, I am not saying that. I like what you talk about! But I hear all the talk about "individualism" is what make capitalism work, and collective thought is so bad.
Here is page 3 that you give for the example. Very good example you show of for the collective thought in the free market!

Our Guiding Principles and Values
1.
We have a patriotic duty to come together on a plan that will make America better off tomorrow than it is today
„H
America cannot be great if we go broke.Our economy will not grow and our country will not be able to compete without a plan to get this crushing debt burden off our back.
„H
Throughout our history, Americans have always been willing to sacrifice to make our nation stronger over the long haul. That¡¦s the promise of America:to give our children and grandchildren a better life.
„H
American families have spent the past 2 years making tough choices in their own lives. They expect us to do the same. The American people are counting on us to put politics aside, pull together not pull apart, and agree on a plan to live within our means and make America strong for the long haul.

 

[dandxg]

Nice write-up Ed.

 

[MarketMasher]

Quote from Ed Breen:



Only an idiot could design a structure like this. The U.S. is the only major OECD company that has this sturcture.

Wow. Does anyone know the origin of that structure - who proposed it and why?

Seems like it would make a good Matt Tiabbi article...

 

[limitdown]

Quote from Ed Breen:

you will end up with weakened U.S. companies. stronger foreign companies, less diverse operations, and lower tax revenues for the U.S., all around.

outstanding write up

thanks for the substantive contribution

incidently, we already have those conditions, as I highlighted select sentences above,

so the alternative can't really be all that bad.

simple minded, you're right, because somehow in that pdf presentation, they did not address the factors you brought to light.

understand though that the report covers more than just the example of foreign subsidiaries owned by US Corporations conducting business exclusively overseas.

either way, we all benefit by substantive and quantitative and informative discussion.

thanks for your contribution.

 

[Ed Breen]

U.S. businesses are weak becuase, in substantial part, becuase of the way capital is taxed in the U.S. The main problem is the double taxation of corporate profits both at the company level and at the individual shareholder level (Company profits are taxed at 35% at the Corp level and then distributed dividends from those profits are taxed again at 15%. (That is a 50% Fed tax rate on distributed income). This corporate tax structure encourages retained earnings over dividends, or share buy backs as a strategy to use profits to increase share price so that shareholders can take profits out as capital gains. Playing into this high tax anti dividend structure is the deductibility of corporate debt. This encourages companies to leverage themselves up against retained earnings and seek acquisitions rather than reinvesting profits. It creates more risk.

This is just the situation at the Public Corp level. 65% of U.S. Corps are S-Corps and they are not public, they are 'close corps.' Thes S-Corps account for almost 80% of job creation. When you think about it the Public Corp acquisition growth objective is dominate markets and reduce employment. The tax structure...high tax on profits and deductiblility of debt encourages increased risk and misallocation of capital.

Sub-S, was created to avoid the issue of double taxation of corp earnings and dividends for companies that are directly owned by taxpayers. In Sub-S the income is not taxed at the Corp level but the income flow through to the owner level and is taxed once as regular income (35%), but it is taxed whether the income is distributed as a dividend or not. The problem here is that the engine of job formation, the Sub-S, tax structure discourages the reinvestment of profits back into the business...because the shareholder is taxed on retained earnings at the individual level whether he gets the money as a distribution or not. A typical business should reinvest at least 15% of its profits as low cost capital to remain competitive. If Sub-S owners do this they end up paying highest Fed and State taxes on total company profits even when they only recieve 85% of that profit as divideds...if they reinvest in thier businesses then there effective tax rate soars over 60%. This of course would encourage growing Sub-S corpts to leverage themselves, deduct the debt cost, and lower earnings, working with borrowed capital instead of reinvested profits. However, most Sub-S corps can not obtain leverage at the same terms and cost of C-Corps, and in many cases they cannot obtain necessary leverate at all, which puts them at a competitive disadvatage to C-Corps and constrains their growth...ecncouraging them to sell into the C-Corp acquisiton and job killing machine.

All this is occuring before you consider the higher cost of regulation in the U.S., the imputed "taxes" from fine funded operations of OSHA and EPA on both the State and Fed level, high property taxes, taxes on machinery value, high excise taxes on energy, high workers comp costs, high insurace costs driven by the worlds most active tort bar and labor bar, high medical insurance costs, actually made higher (at Sub-S level) by new heath care law. Part of the attraction of foreign site facilities is the ease of doing business relative to the U.S....skilled labor is generally better trained, more abundant, better motivated and lower priced in foreign countries; cost to rent or develop a facility are much lower and can be executed much quicker...and foreign taxes on income are lower. Is it any wonder that the situation encourages foreign investmenet over domestic investment? This is not really a labor cost disadvantage, it is a capital cost and total return on investment disadvantage.

Rather than trying to ring fence U.S. corporations into the capital destroying U.S. corporate tax structure on both U.S. and Foreign earnings it would make more sense to reform U.S. corporate tax structure to encourage capital investment in the U.S...then the money would come back by demand rather than some phyric revenue losing command structure.

A simple way to reverse the incentive and encourage inward domestic investment would be to reduce corporate tax earned to 0 (Understand at the current rate structure Corps don't pay that much percent of revenues collected because they use leverage to lower taxable income and they don't distribute much by way of dividends that are taxable). This obviate the issue of foreing earnings tax right up front...foreing facilities would pay their foreign taxs only...but would pay less if the facilities remained in the U.S. At the same time dividend tax should be raised from the current 15% to the regular income tax rate (35% now). In this way corporate earnings would only be taxed once at distribution and not taxed if reinvested. Shareholders would demand higher rates of dividend because dividends are efficient if only taxed once. This would lead to more active sharholder involvement in the profits and investments of Public Corps, a development most people would see as positive. IRS regulations can also be revived to require dividend payment against earnings retention without an expressed reinvestment purpose (These IRS regulations used to be the norm and they used to be enforced).

On the S-Cop level the reduction of corporate tax to 0 would obviate the need for the Sub-S form entirely. Closed corps could operate as C corps and pay only regular income on thier distributed earnings and not pay tax on money legitimately reinvested in their in business. This of course would put them on an even playing field with C-Corps and support investment that creates and sustains jobs.

I hope you can see that the real cause of U.S. corps forming foreign subsidiaries or controlled foreign corps and outsourcing production globally is initiated by a dysfunctional U.S. corporate tax structure on domestic corps originally. That is part of the reason that the most dyanmaic growth of U.S. multinationals is occuring in the foreign investments and not domestically. Right now U.S. public corp industrial company earnings are only positive because of their foreign operations. To rign fence such operations into the domestic dysfunction would accelerate the flight of capital out of the U.S. Make the changes I oultined about and you would have to allow green card labor to come into the U.S. in order to satisfy increased employment demand as capital starts flowing back to the U.S. with inward investment...and of course revenues actually collected would increase.

 

[limitdown]

ED

every so often,
every so often,
once in a few months or quarters,
someone like you comes along and increases the entire mind-share and brightness of all our intellect with comments like these.

thanks again for your participation