Posted on 08/31/2014 8:08:24 PM PDT by SeekAndFind
Don’t be surprised to lose if you don’t make an effort at being competitive.
And if you go out of your way to make yourself less competitive, expect to lose.
If that sounds like simple common sense, that’s because it is.
But it’s also exactly what the US has been doing for years—enacting tax policies that sabotage its global economic competitiveness.
It’s like trying to get in shape for a marathon by going on an all-McDonald’s diet. (Speaking of McDonalds, check out this funny video spoof of what their commercials should really look like.)
Here are two major reasons why the US is lagging in the global economic marathon:
These “worst in the developed world” tax policies are clearly hurting the global competitiveness of American companies.
Being deemed a “US Person” for tax purposes is like trying to swim with a lifejacket made of lead.
It should come as no surprise that an increasing number of productive people and companies are seeking to shed this burden so they can keep their heads above water.
At this point, it’s more than just a trickle—it’s an established trend in motion.
And I don’t see anything that would reverse it. On the contrary, given the political dynamics—ramped-up spending on welfare and warfare policies, as well as an “eat the rich” mood—taxes have nowhere to go but north. And that means the exodus will continue.
Over the past couple of years, dozens of high-profile US companies have moved abroad (or seriously considered it) to lower their corporate income tax rate and to access their offshore retained earnings without triggering US taxes.
Among them are Medtronic, Liberty Global, Sara Lee, and Omnicom Group—the largest US advertising firm—to just name a few.
Earlier this year Pfizer, one of the world’s largest pharmaceutical companies, sought (but was ultimately rebuffed) to move abroad, which would have cut its tax bills by as much as $1 billion a year.
The strategy these companies are using is known as an inversion. It’s where a US company merges with a foreign company in a jurisdiction with lower taxes and then reincorporates there. Current US law allows for this if the foreign shareholders own at least 20% of the combined company (though some are trying to raise the minimum to 50%).
Now, despite the howls and shrieks from upset politicians and the mainstream media about these companies being “unpatriotic” and “un-American,” they’re doing absolutely nothing illegal. Inversions are totally acceptable within the current rules of the US Tax Code.
Chuck Grassley, a Republican senator from Iowa has said, “These expatriations aren’t illegal. But they’re sure immoral.”
I beg to differ.
Why would anyone want to give the destructive bureaucrats in DC a penny more than is legally required? As far as I’m concerned, not only is there nothing wrong with going where you’re treated best, there's also an ethical and moral imperative to starve the Beast.
And now the latest high-profile company to consider putting the Beast on a diet is Walgreens.
Walgreens is considering reincorporating in Switzerland as part of a merger with Alliance Boots, a European rival. The net effect for would be to reduce Walgreens’ tax rate to 20%, down from around 31% now. The move is estimated to save around $4 billion over the next five years.
What really has the politicians scared is that inversions have started to snowball.
The New York Times quoted an international tax lawyer stating that “it takes one company with enough public recognition to start [a] domino effect.”
Walgreens could be the company that triggers a domino effect. If Walgreens were to move, it would gain a significant competitive advantage against its rivals. CVS, Walgreens’ main competitor, paid a 34% tax rate in recent years. Can CVS really compete with Walgreens if the latter is paying 20%?
Probably not. And that will only lead to more inversions.
Remember, US companies are not globally competitive because of these two unique burdens:
We have already seen how inversions can reduce #1, but they also offer huge benefits in terms of #2.
Reincorporating abroad allows companies to permanently avoid paying US taxes on foreign earnings. It also allows companies to access their retained earnings offshore in ways they couldn’t before without triggering punishing US taxes.
Medtronic, for example, has accumulated $20.5 billion of untaxed earnings in foreign subsidiaries. By reincorporating abroad, Medtronic can access that money without getting slapped with US corporate income taxes, which would save it billions.
For companies like Medtronic and Walgreens, reincorporating abroad seems like a no-brainer.
Contrary to the government propaganda, the villains in this story aren’t the companies seeking to diversify abroad to remain globally competitive. The villains are clearly the spendthrift politicians who enact these “worst in the developed world” tax policies, which create very compelling incentives for these companies to leave the US.
While the US should be enacting policies that make it attractive for productive people and companies to come to the US—rather than driving them away—don’t hold your breath for positive change. It’s more likely that nothing but more taxes and regulations are coming.
But as we have seen with companies like Medtronic and Walgreens, companies have options too.
And it’s not just multibillion-dollar corporate entities that have options. Individuals operating on a modest scale can also reap enormous benefits by diluting the amount of control the bureaucrats in DC (or any country) wield over them. International diversification is the solution.
You do this by moving some of your savings abroad with offshore bank and brokerage accounts, physical gold held abroad, owning foreign real estate, and establishing an offshore company or trust.
Obtaining a second passport is an important part of the mix as well.
You probably can’t take all of these steps, and that’s fine. Even taking just one will go a long way to reducing your political risk and giving you more options. In many cases, you don’t even have to leave your living room.
Think of it as your own personal insurance policy against an out-of-control government.
However, things can change quickly. New options emerge, while others disappear.
Ireland is still 2.5 % to high.
Ireland is still 2.5 % to high.
All Thanks to the SumyCraps.
PFL
Politicians want to charge Americans extra if they renounce their US citizenship to shed onerous tax liabilities.
They’ll gladly pay the increased exit fee if they can get out of paying exorbitant taxes.
What politicians won’t consider is reducing taxes to make remaining an American fiscally feasible.
I've got a great idea.
Raise taxes on the super rich to 90% and raise taxes on corporations.
Then reduce income taxes for the middle class in proportion.
That will give the middle class more money to buy stuff the corporations peddle while not hurting government revenue.
Then raise the exit fee and see how gladly they'll pay it.
Heck...Hussein declared his own sorry butt a “citizen of the world”
Worry when WalMart moves its headquarters to Ireland! Think of the lower low prices!
“Raise taxes on the super rich to 90% and raise taxes on corporations.
Then reduce income taxes for the middle class in proportion.
That will give the middle class more money to buy stuff the corporations peddle while not hurting government revenue. “
.........
You forgot to tag your post:
/sarcasm
/ idiocy
/failed economics
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