Saturday, October 11, 2014
The Truth About Tax Inversions
You've probably heard about Burger King buying smaller Canadian fast-food chain Tim Horton's. Horton's is Canada's answer to Dunkin Donuts. And in an $11.4 billion dollar deal, The "King" has decided to bail on America and move its operational headquarters a couple of thousand miles north. Why? Let me shine some light on that for you...
America has the absolute highest corporate tax rate in the entire world. The Universe, actually. We, America, charge a flat 35% on profits earned by our America-domiciled corps. 35%. That's a whole lot of shekels, kiddies. And when compared with the 23% charged by Japan, the previous champ, and the 15% you pay Ireland and Canada, America's more like the Mob than a partner in your success.
And that's why so many of us are clamoring for tax reform. Lower the tax rates, we demand! There's an old saying, if you want less of something, just tax it more. So if we want less tax revenues, we tax corporate profits more. And that causes the corporations to do exactly what their shareholders demand they do: find ways to lessen the tax bite charged by the IRS. In fact, corporate CEO's and boards of directors have a fiscal and fiduciary duty to their shareholders to take such steps as are necessary to minimize tax rates so as to increase profits, and thereby returns on investments.
Let me say that again: Corporate boards are required to take such steps as prove necessary to maximize returns for their shareholders. To do less means they'll be updating their resumes post-haste.
One of the ways corporations can use is so-called "tax inversions." By this practice an American corp can buy an often smaller foreign-domiciled company and then merge with it. By then moving the newly merged corporate domicile to the other business's country, our corp can stop paying America's tax rates and start paying the foreign nation's. Or, has recently begun to occur, corporations located in Texas, let's say, or Tennessee, or Nevada, as examples, are buying California corporations and moving their HQ's east. Same idea, same result. Imagine: buy a California corporation, move it to a no-tax state, immediately realize a 10+% increase in profits.
Another method to reduce the tax bite is to leave profits earned overseas...overseas. According to the most recent statistics, something on the order of $3,000,000,000,000 is languishing overseas because to bring it home would mean an instant 35% tax bite. Imagine how many jobs could be produced with Three Trillion Dollars! Wouldn't it make sense to offer corporations a one-time break in exchange for repatriating this huge sum of money? Of course it would. Will Barry and his sycophants ever do such a thing? Shame on you for asking.
But our Golfer-in-Chief doesn't like the steps many of our corporations are choosing to take in order to lessen tax impacts. He NEEDS that tax revenue in order to redistribute it to those whose votes he's seeking. And there's no way he's going to give up tax revenues, even if by doing so he'd increase receipts. He's frankly just not that bright. And, importantly, doing so wasn't one of the options covered in Alinsky's book, "The Rules for Radicals," Barry's bedtime reading. He says that he will therefore instruct the IRS and any other Fed agency to outlaw such activities. Outlaw them!
Imagine that. Outlaw something that isn't against the law, because people are smart enough to use the laws to get around arrogant, selfish, preening bastards who want to punish them for making a profit. And then stand up in front of a bunch of hipmotized weenies and union goons and bitch about corporations doing what their boards require them to do. And, what is completely and entirely within our tax laws to do.
Suggestion to the Democrat National Committee: The next time you decide to pick a candidate for POTUS, it might be a really good idea to choose one who actually understands something about the principles of economics...