I found this story http://www.chicagotribune.com/business/breaking/la-fi-tax-inversion-credit-rating-standard-poors-20140910-story.html to be kind of interesting. Given the absolute boot licking that S&P performed in the housing debacle, it's a little surprising, actually, it's quite surprising that they would call bullshit on a sham move that is nothing more than paper pushing bullshit designed to increase profit without actually working to provide increased value for anyone but shareholders. So, let's go ahead and reiterate all the usual talking points.
1) An increase in taxes will never ever ever ever ever ever ever ever ever ever ever ever be paid by a corporation. Raise tax one penny or one dollar, they will pass on every single bit of it and thereby create a tax on the buyer rather than the corp. I find this argument specious, much like the argument that we have the highest corporate tax rate in the world which is true on paper but ridiculously false when you look at what corporations actually pay. Certainly, a corporation will attempt to pass off a tax increase on the consumer and the consumer will decide whether to continue buying that item at a higher price. This argument is not without some truth, but it's not one that I find relevant at every level of increase. No matter what costs go into production, a producer will ALWAYS sell an item for as much as they can. Period. Whether their profit is 20% of price or 60% of price, they will always sell the item for as much as they can. Taking away corporate taxation will not make anything cheaper but will definitely increase profit. This is not a vilification of profit, it's simply stating a fact.
2) Corporations are leaving America because our tax code is so oppressive. This is also bullshit. Corporations are leaving America because we have allowed them to arbitrage labor and skirt the idea of having any sort of responsibility for the pollution they create. China is booming, and is also a polluted, choking shithole that rampantly abuses all workers. Part of what built America, after WW II, was production jobs that not only paid a decent wage, but also provided benefits. With our open door trade policy, coupled with the Fed's piracy of our banking system, we have incentivized corporations to borrow cheaply in America while investing every dime of that borrowed money elsewhere in the world. It's an arbitrage, plain and simple. We could remove all taxation on corporations tomorrow and it would do nothing. Plenty was written about how the previous tax holiday resulted in jack shit being repatriated and reinvested in America. We gave them a break, they brought the money home, and they smiled and said, "Thanks suckers!"
That's probably a good start.
I am not an economist, nor am I a corporation. But, if I were corporation, and if I were good at it, I would already be charging consumers at the maximum rate. To do other wise would be foolish and counter productive. So an increase in my taxes would not be passed along to my customers. Instead I would explore other methods, like selling myself to a foreign corporation, or moving manufacturing to a location with lower wages. Here is a discussion about just these points:
ReplyDeletehttp://www.econlib.org/library/Enc/CorporateTaxation.html
While the author appears to have an 'anti' bias the article on the whole balanced and informative.. Thanks
DeleteThe solution under the current corporate tax scheme is to have a foreign subsidiary which allows business to leave all profits overseas and untaxed. Works like a charm. Microsoft bought Skype, 6 billion dollars untaxed dollars. Reality, Microsoft paid 3.9 billion for Skype and it remains a foreign subsidiary.
DeleteThe entire problem could be fixed by leveling the taxation playing field with our foreign competitors which every tax cheerleader ignores. Tax American business more puts American business at a competitive disadvantage.
Why do you think Honda, Toyota, etc. establish American manufacturing centers? Think they reduce American corporate taxes with writing off labor and related expense costs?
Business will always maintain the set profitability regardless of the taxes charged by the US government. If profitability drops, investors flee. At some point the business will close. Lower taxes? No business would not return the profits in lower prices however it may prevent price increases until profitability returns to the established norms.
As to the lower taxes on repatriated funds in 2004, multinationals had better investment opportunities overseas, even after factoring in a lower tax on repatriated profits. For those firms, the tax holiday had no effect on either their investment decisions or their tax liability.
ReplyDeleteSome returned funds and distributed the funds to investors or bolstered the bottom line raising the value of the business.
The question remains, why would any business invest in the US with this over regulated, over taxed, unfriendly business climate?
Me, I did take on a new project with my business, a personally selfish act to pay for a new kitchen and remodel of 3 bathrooms so I don't have to use savings. My business will pay little to no Business Tax as all revenue received will be distributed to me in income.
"The question remains, why would any business invest in the US with this over regulated, over taxed, unfriendly business climate?"
DeleteI'll keep going to my Walmart example until someone decides to explain, CONCEPTUALLY, why it doesn't fit. The reason to invest in the US is because you want to sell here. It's the same reason that China buys gobs of our debt (AKA invests), because it benefits them to do so. This country presents an enormous marketplace to sell goods into. I personally don't see anything wrong with saying that we the people, through our government, get to place some rules and receive a franchise fee from those who sell here.
In your business Lou, the EPA, taxes and endless regulation incensed you to the point of giving it up and choosing to live as an investor. I get it. But, I don't give up on another one of my points, which is that small business has to play by a set of rules that big business does not. I think this should change. Going to my other example of Walmart, we have a massive marketplace. If you are a producer and want to sell into that market, you will do so on Walmart's terms. If they don't think your production is efficient enough, you will change it. Sears used to be famous for this as well. When a store creates a profit from doing nothing but running a marketplace, no one bitches. When we suggest that the people should receive some payback for defending the rights of merchants, people lose their freaking minds.
Many believe that our court system, our extensive transportation by ways, local fire police and so on are simply no consequence and contribute nothing to helping a business succeed. As such, they don't deserve jack from the people who make money off of them. Don't like it? Don't buy nuthin. Why do small businesses in local communities sponsor kids sports teams and contribute money to building a park or something? They do so because they want to be seen as part of the community and heaven forbid, sometimes they are actually grateful to the community that supports them despite how brutally anti capitalistic and communist that thinking might be.
I guess what annoys me so much about this is that I'm just freaking tired of the brutally uncompetitive marketplace that we have created through deregulation. We deregulated S&L's, institutions that served local communities, and we destroyed that entire industry in very short order. Next came banks. Now we have big box retailers and ginormous banks and scores of multinational companies who want nothing but to sell to us, suck that money entirely out of local communities, redistribute it to investors (who pay no income tax) and contribute nothing to the people they make their living off of. Because we have allowed gargantuan consolidation, we don't even have competition any more so its not like consumers are getting any benefit from that. If business doesn't want to invest in a community in any sort of way that helps that community (or country) sustain itself and thrive, I see no reason to not tax them.
Honda, Toyota etc started American manufacturing operations for one reason. The US govt was poised to put 100% tariffs on Japanese vehicles if these companies didn't invest in America. The trade off was to open US manufacturing operations, a cheaper solution to the problem. SUV's and trucks were not involved. Therefore American manufacturers concentrated on these gas guzzling vehicles because they were still protected by tariff.
DeleteHonda has had a US presence since 1959. As Honda expanded it's auto manufacturing business it was selling 2 cars in the US to every one it sold in Japan where it was more known as a motorcycle company. This goes right back to Max's article above. The US is an enormous market. Today almost all foreign manufacturers have opened plants in the US to manufacture SUV's and Pickups to avoid the tariffs on these vehicles. Today General Motors still ranks as the most American of all car companies with 11 major assembly plants on American soil. Ford has 8, Chysler six, and the foreign manufacturers have between 1 and 4.
Your hilarious Rick.
DeleteYou should get your story straight:
1995-05-16 04:00:00 PDT JAPAN; UNITED STATES -- WASHINGTON - The United States Tuesday targeted Japanese luxury cars for the biggest punitive tariffs Washington has ever imposed, in a bitter fight over Japan's refusal to open its markets to American cars and car parts.
The Clinton administration Tuesday said it would impose punitive tariffs on $5.9 billion worth of Japanese luxury auto imports if agreement is not reached in the dispute by June 28.
Prior to manufacturing, they paid the full ride on profits, today, they write off the costs. No one is afraid of the big bad clueless wolf, the US Government .
No you are hilarious. The move to make cars in the US stems from the harsh policies of your free trade hero Ronald Reagan. because of his so called free trade policies the Japanese auto manufacturers by 1994 made more cars in the US for sale in the US then what they imported. After the Clinton 1995 increase of tariffs on 13 luxury imports Japan opened it's markets to American made autos and car parts. So yes Japan does fear the big bad wolf.
ReplyDeletehttp://www.cato.org/pubs/pas/pa107.html
http://www.mises.org/freemarket_detail.aspx?control=489
http://articles.latimes.com/1995-06-29/news/mn-18531_1_u-s-trade-deficit
In a related story to autos here's one that might surprise you
http://www.forbes.com/sites/joannmuller/2012/08/29/automakers-report-card-who-still-owes-taxpayers-money-the-answer-might-surprise-you/
Here's a hint it's the one you think took no bailout money/ but it did.
fact is Lou Toyota's US income tax expenses have increased since it started US production.
To get to Max's original point on why to stay.
ReplyDeleteBurger King paid an effective tax rate of 27.5 in 2013 That was one of the lowest of all the major fast food chains. In comparison McDonald's paid 31.9% Yum Brands 31.4% and Wendy's 23.4%
Here's how other companies fared
ExxonMobil 42%
Chevron 43.3%
ConocoPhillips 45.6%
Walmart 32.6%
J.P. Morgan 29.1%
Microsoft 15.9%
Wells Fargo 31.5%
IBM 24.5%
Apple 24.1%
Frprt McMoRan 35%
Philip Morris 29.1%
Intel 27.2%
Proctor/Gamble 25.8%
J&J 21.8%
Pfizer 31.5%
Oracle 23.6%
G E 28.5%
Occidental Oil 40.2%
UHCare 35.4%
Citigroup 24.1%
Merck 12.8%
Disney 33.8%
PepsiCo 27.0%
Qualcomm 20.8%
Some of these rates are surprisingly high. So why do they stay. The MARKET. The US market is the largest by far in the world.
Companies like Burger King 99%franchised jump ship and leave the taxes to their Franchisees.
Of course Toyota and Honda's taxes have increased. THEY SELL MORE CARS MAKE MORE PROFIT.
ReplyDeleteYou would never admit to anything that didn't fit your mantra.
I have had enough of your superior attitude of Obama and rick, my way or the highway.
Your a waste of good time and off to work I go.
Enjoy your personal web site as it is now deleted from my computer.
Good I know I got ya when you post like this. No where in any of my posts do I mention the president.
DeleteFacts hurt don't they Lou.
Glad to see you are again a contributor to society.
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DeleteIndeed, 3 more weeks to go and I will be finished with the project.
DeleteBack to my sabbatical.
With it will come a renovated Kitchen, 3 baths, wood floors on the entire first level and refinished entry way.
And zero Federal income tax on the business side. Will have a slight increase on the personal side. That sucks.
I love it when I can stiff Barack.
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ReplyDelete