Skip to comments.How Obama is driving U.S. corporations to flee America
Posted on 07/17/2014 6:22:46 AM PDT by Kaslin
No hint of changing America's highest corporate tax rate.
This has been a major theme of our boss for some time - and it's not just a matter of reducing the corporate tax rate. It's a matter of ripping the entire tax code up from its roots and establishing a new, simpler one with low rates on a very few things, without all the deductions and loopholes.
In the context of that discussion, we look at one of the truly counterproductive effects of the tax rate we now have: A 35 percent federal corporate tax rate is a major competitive disadvantage for U.S. corporations, and not only as they go up against global competitors. It is also a major disadvantage as they deal with their own costs, market challenges, labor force dynamics . . . you simply can't create wealth in an economy that intentionally hamstrings those set up to be wealth producers.
So U.S. corporations are doing what it only makes sense to do, which is to find a way to reduce those costs. Democrats are shocked - shocked! - to learn that this often leads to the practice of inversion, which is to merge with a company in a nation with lower tax rates, and then establish your headquarters in that country. We told you recently about Walgreens making this move, and there are plenty of others. The response of the White House? Not to reduce the tax rate to keep these companies in America, silly! No, they're demanding "economic patriotism" of corporations, which means they want them to bite the big one and watch all that revenue go out the door so they can stuff Treasury's pockets at the expense of their own vitality.
And don't buy the predictable nonsense about how no one really pays the 35 percent rate because of all the shelters and loopholes. That's a load of crap for two reasons, one of which the Wall Street Journal explains here:
There's a liberal canard that the U.S. statutory tax rate is high but companies pay only a few cents on the dollar in reality. That's true in some cases in which companies are able to exploit loopholes (especially green-energy subsidies) or deduct big losses over several years. We've written about Whirlpool WHR +0.45% , for example.
But the claim is obviously false in general given deals like Mylan's proposed acquisition of overseas generic drug businesses from Abbott Laboratories. ABT -0.29% The new combined company will be based in the Netherlands, where the corporate tax rate is a high but not insane 25%. Even a 10-percentage-point rate cut is enough of an incentive to relocate.
Mr. Lew doesn't know much about economics or he'd realize that his rush to block these inversions will have the perverse effect of driving even more deals in the coming months. If CEOs think Congress will close the inversion possibility, and that tax reform is dead until Mr. Obama leaves office, more of them will decide to move while they still can.
As for "economic patriotism," Mr. Lew also doesn't understand that foreclosing inversions would only make U.S. firms more vulnerable to foreign takeovers. If executives can't reduce their tax disadvantage by moving abroad, more of them will choose to serve shareholders by offering to be purchased by foreign firms that have a lower world-wide tax rate. And even if CEOs resist a foreign offer, shareholders might prefer the higher after-tax return on their investment. Who's the real Benedict Arnold of tax policy here?
The other reason this argument is nonsense is that, even when it does apply, it still requires corporations to engage in behavior deemed favorable by politicians in order to reduce their tax rate. Just because you take advantage of a deduction doesn't necessarily mean you did what was in the best interests of your company, your employees or your shareholders. Consider the example of Whirlpool, mentioned above in the WSJ excerpt. Yeah, they were able to deduct losses, but before you can do that, you have to lose money. That may get you more favorable tax treatment under the current U.S. tax code, but it's not exactly a model for corporate success.
What we need is a simple low corporate tax rate that doesn't reward one type of behavior over others, and certainly one that doesn't reward and encourage losses.
Now this is where Democrats will tend to argue that that corporate losses are no big deal because big corporations like Whirlpool just view it as a write-off. That is exactly the type of thinking that leads to such an insane tax code. Any company would rather pay taxes on profits than write off losses, but the people who produce goods and services while employing people are still going to do better if the tax rate they pay on their profits is lower.
Democrats seem to have received their information about write-offs from Kramer:
Write Off Seinfeld Good Quality
So what is the GOP doing to support American manufacturing?
For the last generation, both parties have shipped jobs overseas as quickly as possible.
Everyone is sending jobs overseas. Have been, for a very long time.
BRING BACK AMERICAN MANUFACTURING.
The government’ll pass Directive 10-289 before they give up their protection tax racket.
The blame should go to the unions. They are the ones who drive the companies overseas
Not necessarily. I worked for a huge company that didn’t have a union, but tens of thousands of jobs were dumped here and manufacturing shifted overseas.
He doesn’t care if they leave, but he’s taking their money first.
“How does a political party ship a job overseas?”
The party uses political power to enact laws and regulations that discourage investment in the United States. The investment goes to other nations. Jobs follow investment.
An example is the textile and apparel industry. In response to the threat of Asian apparel imports wiping out the US textile industry, as well as illegal immigration from unemployed people in this hemisphere, the Reagan administration and Congress enacted legislation in the In the 1980’s allowing US manufacturers to ship US produced fabric to factories in Central America and the Caribbean basin to be sewn. The sewn products, as long as they were made with 100% US made fabrics and trims (buttons, labels, zippers), were allowed back into the US duty free. These products were cost competitive with Asia under the tariff structure at the time, allowed US textile workers to keep their jobs making yarn and fabric, and provided low skill jobs for tens of thousands of western hemisphere workers in third world countries.
Under the Clinton and two Bush administrations, quotas and tariffs were eliminated on Chinese imports of apparel and the requirement that Central American sewing factories use US fabric to bring in goods duty free was eliminated. The US textile industry collapsed, Asian imports swelled, hundreds of thousands of US jobs were lost, illegal immigration from Central America into the US increased. Prices for basic apparel did not decrease.
This is a real life example of how the free trade policies of both political parties send jobs overseas. The same results have occurred in many consumer products industries, the furniture industry, and many industrial product categories.
I have yet to see an economic study that demonstrates the free trade policies of the 1990’s and 2000’s have resulted in a net economic benefit to the economy of the United States. Instead we’ve seen a decline in the standard of living of the average family, the evisceration of our once world leading industrial infrastructure, swarms of low skilled immigrants into the US, and the rise of China as an economic and military power to rival the US. The economic benefits flowed to the Wall Street bankers who facilitated the shifting of capital from the US to Asia.
Despite the failure of these free trade policies our political parties continue to pursue them.
For the 9,999,999th time, corporations don’t pay taxes... consumers do!
The Socialists/Marxists always come up with the same solutions too.
I would suggest spending less time at Brookings, EPI, and Public Citizen and more time at Heritage, Cato, etc.
Greed (top to bottom), excessive taxation, new-age MBAs, non-patriotism all play.
Jobs out & illegal immigrants in, debts up & earnings down, emotion high & rationality low, lewdness strong & morality weak...
The Democrats are just being the Marxist, ideology-driven, anti-American, Welfare Mack Daddies they truly are. Waddaya expect from them?
No, our real problem is in what's supposed to be OUR party. The GOPe sold out to the Dems long ago. They are in those safe seats to serve major corporate contributors, not you. It's a wonderful deal .... for them. They are fighting US tooth and nail to keep their party going.
Excuse me Mr. Republican. Where's the Border Fence? What's wrong? Those corporations you're paid to protect couldn't get enough cheap labor overseas, so you're helping them bring it here? O, I get it.
Until tax law changes, they ain’t coming back.
Until rule by agency fiat ends, they ain’t coming back.
Until the liability laws and feral attorneys are reigned in, they ain’t coming back.
Until companies can know their expenses in advance, they ain’t coming back.
I’ve concluded both wings of the Central Oligarchy like things as they are now. They are both anti-capitalist.
I’ve sold off my businesses. My next company will be formed overseas in a place that welcomes capital.
Yes, the South has lost millions of manufacturing jobs that were non union.
Inversion is the cnbc new speak jargon.
Inversion is just code for “FLEEING OBAMA”
“I would suggest spending less time at Brookings, EPI, and Public Citizen and more time at Heritage, Cato, etc.”
Please refer me to even one comprehensive economic study that demonstrates a net economic benefit to the economy of the United States from the free trade policies of the the 1990’s and 2000’s. By net economic benefit I mean any increases in economic activity from trade offset by the economic costs including unemployment and associated welfare and retraining costs, downstream economic losses in communities where a factories closed resulting in closure of other businesses (i.e. the trickle down effects conservative economists like to talk about with respect to tax reductions but don’t like to talk about with respect to loss of factories).
If you have read such a study at Heritage or Cato, reference it so I can review it. I’m not aware of even one such study being produced by government, a university, or any think tank. The reason - there have been no net benefits. The economic and political interests on both the right and the left that benefit from deindustrialization and declining standards of living in the US don’t want the people to know what a disaster these policies have been.
Well, is our economy larger or smaller than it was in 1994?
Well, is our economy larger or smaller than it was in 1994?
The economy is larger but so is the population and there has been inflation as well. It is more instructive to compare the growth rate of the US economy for the 20 year period prior to trade liberalization to the growth rate since.
In the 20 year period from 1974 to 1994 the US economy (nominal GDP in 2013 dollars, adjusted for inflation) grew by 371.9%. The US population grew by 23% during that 20 year period. The economic growth rate of the most recent 20, when the US has been exporting its industrial infrastructure, is only 1/3 of the economic growth rate of the previous 20 years when US industry was protected with higher tariff rates and quotas on imports.
During the 20 year period from 1994 to 2014 the US economy (nominal GDP in 2013 dollars) grew by 129% or 1/3 the rate of the previous 20 years. During this period the US population grew by 20%.
Currently the average tariff applied by China (mean of tariff applied to all imports) is 4.5%. For the USA it is 1.5%. With respect to apparel specifically the average rate on clothing imports into China is 10% to 23%. The average duty rate applied by the US on imports of clothing ranges from 1.2% to 16%. In addition, the Chinese government provides an export credit (i.e. direct subsidy) to its domestic factories of on the value of exports, as well as tax incentives and other direct subsidies for capital improvements, advertising, brand development, R&D. This is the “free trade” system we are operating under. US tariffs 1/2 or less than the foreign competitor, the foreign competitor is heavily and directly subsidized by its government, and the foreign competitor’s effective tax rate is 1/2 or less that of the US competitor. This is before lower labor rates and lighter regulation is factored in.
If we continue practicing this type of “free trade”, we will continue to lose jobs, our economic growth rate will continue to slow, our economy will be unable to supply jobs for all of the immigrants we are allowing into the country, and we will become a third world nation within a generation.
Please do provide the Cato or Heritage reports you were referencing. I’d like to see their take on the hard data.
I don’t think you are interested in hard data. If you are capable of find your hard data from the commielibs, (the datasets that begin after the oil shock of the early 70’s is the tipoff), then you are perfectly capable of finding it at Heritage or Cato. My guess is that you are afraid to have your assumptions challenged.
“If you are capable of find your hard data from the commielibs, (the datasets that begin after the oil shock of the early 70s is the tipoff), then you are perfectly capable of finding it at Heritage or Cato.”
If you know it is at Heritage or Cato you should be able to refer it. Interesting you claim to know but provide nothing. Ignorance is bliss!
I’ve post that stuff so many times I can’t count. It always results in pretecctionist/libs running away while screaming like stuck pigs. Only to see that same person posting their same bullcrap, again.