Tag Archives: taxes

Democrats and Inversions

Posted on by
Reply

Inversions in this context, to oversimplify, are when American companies buy foreign companies and then relocate their headquarters to that foreign country in order to take advantage of that country’s lower tax rates. That this is part of an American company’s management fiduciary duty to the owners to minimize costs and maximize profits is unimportant to the denizens of the present administration and to too many “Republicans” as well.

President Barack Obama’s Treasury Secretary, Jack Lew, had some thoughts about the evils of inversions.

These transactions erode the US tax base, unfairly placing a larger burden on all other taxpayers, including small businesses and hardworking Americans[.]

Of course, Lew and Obama carefully ignore the fact that half of us Americans already pay little or no taxes, “unfairly placing a larger burden on all other taxpayers.”

They also ignore the fact that it isn’t their money in the first place; the money belongs to the companies’ owners.

They also ignore the fact that our “tax base” already is excessively progressive and that it has the highest business rates in the world.

Lew went on:

These first, targeted steps make substantial progress in constraining the creative techniques used to avoid US taxes, both in terms of meaningfully reducing the economic benefits of inversions after the fact, and when possible, stopping them altogether.

A better way to reduce the economic benefits of inversions would be to do the patriotic thing: lower, drastically, the tax rates on American businesses. Taxes, after all, are at the foundation of our Revolutionary War—not only the stereotypical taxation without representation, but also the point of that demand of representation: so we could keep tax rates from getting out of hand.

If our business tax rates were lowered sufficiently—Ireland, for instance, taxes businesses at 12.5%, compared to our 35% rate—a couple of things would occur. The first would be a cessation of inversions, and if our business taxes were lowered significantly below 12.5% (I’ve been advocating all along for an elimination of taxes on our businesses), foreign businesses would be attracted to the US, bringing with them the jobs they have.

The other thing that would occur involves the $2 trillion that American companies with foreign branches, affiliates, and so on are holding overseas in order to avoid our usurious tax rates. With those tax rates vastly reduced, that money would come home. $2 trillion is a lot of jobs and capital investment (which is more jobs in the nearby future) waiting to happen.

But tax rate reductions are anathema, if not inconceivable, to Democrats.  And to too many “Republicans.”

Another Look at Tax Inversion Mergers

Posted on by
Reply

Burger King Worldwide Inc is in talks to buy Canadian coffee-and-doughnut chain Tim Hortons Inc, a deal that would be structured as a so-called tax inversion and move the hamburger seller’s base to Canada.

After all, Canada’s corporate tax rate is competitive even with Ireland’s 12.5% rate, at least from the lofty perspective of our own 35% top corporate rate: Canada’s rate is 15%. This inversion isn’t just the fiscally sound thing to do, it satisfies the company management’s fiduciary duty to control costs and maximize profits for the company’s owners.

BK isn’t alone in moving to Canada:

Valeant Pharmaceuticals International Inc, which had been based in California, combined with Canada’s Biovail Corp in 2010 and redomiciled in Canada. The company now has a tax rate less than 5%.

And there are others.

Naturally, the Progressives in Congress and the White House—and no few captured Republicans—are demanding a stop to the inversions. Not in any sensible way, though. Treasury, for instance, is looking at a range of “options to deter or prevent” inversions.

No, BK’s pursuit of an inversion deal only illustrates the distorting, anti-competitive nature of our current tax code, and Treasury’s “options” will only make the thing worse. The right answer is to lower US corporate tax rates to competitive levels. When it becomes more attractive to be in the United States, to invest in the United States, to have a chance actually to turn a profit in the United States, not only will the BKs, the Valeants, and the AbbVies and Covidiens, et al., stay, foreign companies will look to come to the United States, bringing their ideas, their money, and their jobs here.

Even Canada, right next door (the convenience…), is becoming host to these things. But (even) Canada has been improving its tax structure for some years, lowering its corporate tax rate since 2005 from over 22% (still lower than the US’ then) to just 15%. Indeed, here’s a hint:

Tim Hortons [originally a Canadian company until its acquisition by Wendy’s] initially kept its headquarters in Delaware after it was spun off by Wendy’s in 2006. The chain moved back to Canada in 2009, shortly after the Conservative government in Canada lowered the nation’s corporate tax rate.

Democrats and Tax…Inversions

Posted on by
1

Walgreen Co looked hard at doing one of these—buying an overseas company and then reincorporating in that overseas jurisdiction to lower its US tax bill, a bill flowing from a world-leading 35% tax rate. Indeed, Barclay’s had estimated that Walgreen would save $797 million a year in taxes if it carried through. They were brow-beaten out of the move, though, by the Federal government.

Now, Senator Chuck Schumer (D, NY) and his Senate cronies are looking at getting in the way of inversions generally.

The proposal…would restrict the practice of earnings stripping, where US companies borrow money from overseas parents and deduct the interest expense on US taxes.

Other proposals look at blocking outright such inversions.

This is an area where the supposedly low-tax Republican Party isn’t helping. House Republicans don’t want a (short-term) measure to interfere with inversions, but for the wrong reason: it would make U.S. companies vulnerable to a foreign takeover.

This is the Republicans’ own error. They shouldn’t be cracking down on inversions at all; they should be looking to make them economically useless by lowering corporate tax rates, instead. If we had competitive or better business tax rates (Ireland’s, for instance, is 12.5%), foreign companies would be looking to come here with their jobs, their business, their innovation, instead of our companies looking to go there.

Of course Senate Democrats (and their House colleagues) aren’t moving to lower business tax rates as a means of reducing the rate of inversion, either, as tax reductions are inconceivable to Democrats.

The White House as Tax-Writing Authority

Posted on by
Reply

Secretary of the Treasury Jack Lew originally (originally: three weeks ago, in mid-July) acknowledged he had no authority to alter the tax implications of US businesses reincorporating overseas in order to reduce their US tax burden.

Now he’s looking at (not for) ways to “meaningfully reduce the tax benefits after inversions take place” because reducing a company’s cost structure, the legally and fiscally required behavior of any company’s managers, by making use of this “unpatriotic tax loophole” is unpatriotic. I’ll ignore the fact that what’s unpatriotic here is the usurious tax rates charged American companies and the zeal with which this administration attacks American companies for worrying about their bottom line more than they worry about government imperatives in order to get to a different point. As The Wall Street Journal put it,

So now we have a President in an election year looking for a way to raise taxes on corporations after he couldn’t get Congress to agree. Has anyone asked Treasury’s career lawyers or the Office of Legal Counsel? Someone should. And when the next President arrives in 2017, one of his first acts should be to release publicly all of the OLC memos making the legal case for Mr Obama’s many illegal acts, assuming there are any.

And if there are not, the next President should release far and wide the empty file folder that would be this administration’s lack of consultation with the law or with any government lawyers.

Entitlements and Taxes

Posted on by
Reply

Dr Ben Carson had a couple thoughts a while ago; they’re still valid.

On taxes:

What we need to do is come up with something simple. And when I pick up my Bible, you know what I see? I see the fairest individual in the universe, God, and he’s given us a system. It’s called a tithe.

We don’t necessarily have to do 10% but it’s the principle. He didn’t say if your crops fail, don’t give me any tithe, or if you have a bumper crop, give me triple tithe. So there must be something inherently fair about proportionality. You make $10 billion, you put in a billion. You make $10 you put in one. Of course you’ve got to get rid of the loopholes.

On health care:

Here’s my solution: when a person is born, give him a birth certificate, an electronic medical record, and a health savings account to which money can be contributed—pretax—from the time you’re born ’til the time you die. If you die, you can pass it on to your family members, and there’s nobody talking about death panels. We can make contributions for people who are indigent. Instead of sending all this money to some bureaucracy, let’s put it in their HSAs. Now they have some control over their own health care. And very quickly they’re going to learn how to be responsible.

The only place I disagree with him is on the degree of heritability of the HSA. Given the slowness of growth of the relevant supply (of health-related services) compared with the rapidity of growth of its demand, accumulating wealth in an HSA would over just a couple of generations create too much money earmarked for health services; this money would rapidly increase health services prices. And that would price those just starting out—newborns, new immigrants, and so on—out of the health services market, just as the present system and its immediate precursor have done. Instead, let the dearly departed’s remaining HSA be passed into his estate as an ordinary asset of the estate, and let each new entrant—those newborns, new immigrants, and so on—start their own HSAs anew.

Nonetheless, The Wall Street Journal titled their article about these thoughts “Ben Carson for President.” We could do worse.