Monday, May 4, 2009

U.S. to Companies: We Hate You

Obama said today in a press conference that he's going to crack down on offshore tax loopholes and other forms of tax havens. Companies do this to avoid the taxation imposed on them by the government and are looking for the "path of least resistance": the location where tax code can be most beneficial to them. Why would they act in such shady ways?

Well, what would you do in their situation? Here's what companies face: a corporate tax rate of 39.3 percent. Our country says fine. You can work here, provide jobs here, expand here, pay your employees well, and reinvest...but only after we take OVER A THIRD of your money! What would you do? Take a look at the state income taxes, which vary from state to state. Say you're just over the border living in Minnesota. You would be looking at a state income tax rate of 5.35%, 7.05%, or 7.85%, depending on your income. A couple miles away in South Dakota, the state income tax is 0%. People are moving from around the country (voting with their feet) in droves to places like South Dakota to avoid high rates of taxation.

That's exactly what these companies are doing!

So, President Obama, why don't we look at the root cause as to why companies (jobs) are literally running away from the United States? Rather than trying to stop the hemorrhaging of companies out of the U.S. through new overseas tax rules, why not make incentive for companies to stay here?

Here's a "radical" idea. Some CHANGE, if you will.

Why not drop the U.S. corporate tax rate to ZERO percent? We will be the nation that foreign companies will flock to, thirsty for a friendly business environment. Millions of American jobs would be created, and ultimately more money would be brought into the coffers of the U.S. Treasury. Industry will return to America. Sure labor may be cheaper overseas, but when companies aren't taxed at all here, that cost-saving measure might not really be a factor anymore!

One of the more common responses I'll get is that companies are big, rich, evil, and have a better ability to pay taxes than the little guy (me and you).

In response to that, I say that corporate taxes do nothing but HURT the little guy. Taking 40 percent of companies' profits inhibits a company's ability to grant pay raises and benefits to their workers and reduces how much the company can reinvest and build another wing on the factory (more jobs for little guys). Companies may compensate by raising their prices (so all us little guys have to pay more for all products). High company taxation also decreases the amount they are able to dish out in the form of dividends to their shareholders, which consist largely of 401k retirement accounts and similar things...accounts owned by the little guys like us that we rely on to create a sufficient retirement account for ourselves.

I would also mention that corporate taxes are double-taxation anyway...once companies are taxed, the remaining money dished out to all the workers and executives is again subject to personal income tax. And sales taxes. Excise taxes. Property taxes. Etc. Etc.

You want change? This is change that President Obama will never see through, yet would help you and me and all of America much more than any new overseas tax rules ever could.

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