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Parking Offshore Profits Hurt the Domestic Economy

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Parking Offshore Profits Hurt the Domestic Economy

Conducting commerce internationally is not a crime. However, the lack of reinvesting domestically provides an inevitable drag on a viable internal economy. Publically traded companies operate under a set of rules that confuse the average investor. Most privately owned businesses are well aware that paying taxes on profits is the price paid to transact trade. Transnational corporations park extraordinary sums of money offshore to avoid a tax rate that most ordinary businesses pay routinely. Such discrepancies act as negative incentives that plague a feeble employment record.

Bloomberg makes the following points in the article,
Repatriation Bill to Tax Overseas Profit at 8.75 Percent.

"Corporate repatriation legislation proposed by Senators Kay Hagan and John McCain would let U.S. businesses bring home offshore profits at an 8.75 percent tax rate.

The rate on repatriated profits would drop to 5.25 percent if a company’s payroll expanded during 2012, according to a summary of the bill released by Hagan’s office. The current top corporate rate is 35 percent.

Independent studies showed that when a tax holiday was last offered, in 2004, the lower tax rate for returning profits spurred little hiring or domestic investment. Most of the money was used to buy back stock. Democrats have said they are concerned that could happen again with a tax holiday.

Under the Hagan-McCain proposal, if a company repatriates profits and then reduces its staff, it would be required to add $75,000 to its gross income for every position eliminated."

The apparent question is why these domestically chartered companies are not paying a uniformed tax. The U.S. has long taxed the individual on worldwide income. Why enable foreign branches avoidance loopholes to keep huge caches of liquidity overseas? Forbes provides this analysis in,
Bringing Overseas Corporate Profits Back To US Not Necessarily A Job Booster.

"All of Western Europe allows for its multinationals to repatriate billions of dollars back home without paying the statutory corporate income tax rate. They enjoy a much lower rate, in the single digits in countries like Japan and UK, where corporate tax rates are similar to that in the U.S., with American companies falling in the middle of the two. In theory, the tax break avoids double taxation on corporate profits filed in other countries, but the trouble with that is that a portion of those profits are being booked in tax havens that have no income tax.

In many cases, these corporations have already accrued profits tax-free using techniques that shift reported income to tax havens anyway, like Google, to avoid an enormous amount of tax."

Both of the Bloomberg and Forbes accounts see little expansion in domestic jobs just because a conglomerate might get a tax break to bring the money home. While all taxation is punitive and a caustic burden on commerce, the sophisticated tax dodging available to accounting departments of mega-corporations offer some strange strategies.

US_GETAX0811_SC.jpg

America is GE’s tax haven author David Cay Johnston provides an example of a different experience.

"GE’s disclosures show that over the last decade it paid much lower tax rates in America than offshore, just the opposite of the Washington political mantra. Even more puzzling, the U.S. corporate giant chooses to take more of its profits in other lands despite the higher tax rates there.

Given that GE has a roughly 1,000-person tax department dedicated to paying as little as possible in taxes, what the disclosures show is that something other than tax policy is driving GE’s business decisions.

The law gives companies a great deal of latitude in deciding how to arrange where they report profits from multinational transactions. GE won’t elaborate on why it takes so much of its profit in higher tax jurisdictions offshore."

Therefore, tax rates alone may not be the determining factor where corporatists decide where to apply their trade. Remember General Electric paid no federal taxes in 2010. So why not use company profits to expand in our own country. Well, the answer has been registered over the last few decades that definitively prove that creating viable domestic employment opportunities is a very low priority in the business plans of these globalists.

Even the fable king of the corporate cult plays tax games. How Apple's Phantom Taxes Hide Billions in Profit illustrates stashing money offshore is a trend here to stay.

"On Tuesday, Apple is set to report financial results for the second quarter. Analysts are expecting net income of $9.8 billion. But whatever figure Apple reports won't reflect its true profit, because the company hides some of it with an unusual tax maneuver.

And just like other corporations, Apple leaves cash overseas. If it brought it home to the U.S., it would have to pay federal income taxes on the money (though it would get a credit for foreign taxes already paid). In Apple's case, those overseas accounts have grown to a staggering $74 billion - equal to the market value of Citigroup Inc."

Off-shoring business activity, a cannon of operation for the internationalist multinational, is deleterious to the domestic economy. Keeping after tax profits in foreign banks virtually guarantees that future expansion or acquisitions will be seeded in overseas jurisdictions.

Now many proponents of globalism will defend this practice. However, the harsh reality is that the American market is systematically being dismantled. The motivation behind stripping away an independent industrial based economy is to make domestic consumption reliant upon foreign supplies. This fact is indisputable and, arguably sinister.

Rational protective tariffs are demonized as anti free trade. Yet all that the destructive free trade scheme has produced is widespread poverty within our own borders. Creating the incentive to abandon the domestic manufacturing domicile is tragic. The importing of products or services priced to reflect slave labor costs or deferred before tax capital, is suicidal.

Accumulating huge profits offshore on sales within foreign lands may be more palatable. But allowing domestically incorporated companies to conduct trade under the auspices of U.S. law should demand a legitimate price to be paid for that protection. The trade game, as it currently plays out, is a license to steal from the domestic consumer, while the corporate lobbyist bribe officials and game the system for favorable tax considerations.

Repatriation of profits stored in offshore banks is secondary to re-establishing domestic employment. The link between selling the products and services within a market where they are made, requires a balance and synergism that does not currently exist. This standard certainly applies to the rebuilding of American industry. The tax and duty laws need to correct the methodical destruction of the domestic economy.

Licensing regulations tied to employment requirements are a positive technique to compel transnational companies to fulfill their civic responsibility for the opportunity to operate in the United States. International trade can be beneficial, but a sound domestic economy secures survivability.

James Hall – July 25, 2012

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