So all right. I’m not an economist. I don’t have any letters after my name so I’m talking from a pure common sense perspective here. After reading about how our tax policies encourage corporations to invest in jobs overseas, I have a suggestion for economists to mull over and poke holes in. The Harvard Tax Policy Law Center suggests one solution – institute a policy of taxing profits held in tax havens and low-tax countries for the difference between what they pay in those countries and what they would pay here.

I have another suggestion to incentivize businesses to move their base of operations back here to the good old USA. Give them a chance to cut their tax liability in half. That’s right. You’re hearing me right. I am advocating completely cutting corporate income taxes in half for big business under this plan. Here’s the specifics (and remember, I know that there are very likely huge holes that could be poked in this. I understand that it is not taking many other things into consideration. I offer it for discussion and as a talking point.)

Let’s amend the progressive income tax to a graduated corporate income tax pegged to their investment in the U.S.A. job market. Set up a system with a single tax rate – but adjust the percentage of profit taxed to the percentage of the company’s jobs that are here in the United States.

Under my plan, if your company earned $100,000 in profit and 100% of your jobs are here in the US, you pay taxes on 50% of your income. That’s it. You get to keep half of your money completely tax free. For every percentage of your job equity that is sent overseas, you pay taxes on another .5% of your profits. Thus, if your company earned $100,000 and 50% of your jobs are overseas, you’ll pay taxes on 75% of your income. If 90% of your jobs are overseas, you’ll pay taxes on 95% of your income.

However, it also requires a change in another aspect of the tax code to really drive it home – the part of our tax code that encourages big businesses to keep their profits (and move their profits) overseas. That needs to be addressed – we MUST remove the incentive for companies to move their jobs and keep their profits overseas instead of bringing them home and spending them here.

First, the basic concept that you have to understand is this: multinational companies – companies who do business in foreign markets – are required to pay taxes to that foreign country on the income earned there. They are not required to pay US taxes on those profits AS LONG AS THEY DO NOT BRING THE PROFITS HOME. In other words, as long as those profits are held in a foreign holding company and not attributed to the US company, there is no need to pay US taxes on them. In addition, there are ways to shift US profits to offshore companies and avoid paying US taxes.

Next, let’s take a little side trip to the web site of a company that helps US companies take advantage of all the tax breaks they’re allowed under US tax policies. Here’s a few excerpts:

Foreign Tax Credit Maximizer
| Maximize a US taxpayer’s ability to use foreign taxes that the taxpayer’s foreign activities are subject to, as tax credits against the US tax liability.

In other words, if a company pays foreign taxes to a foreign country on earnings in that country, the amount of the tax can be deducted against the amount of tax that they pay in the U.S. Yes – income should be taxed once and only once, but it should be taxed fairly.

Transfer Pricing |
Let us assist you with intercompany pricing studies and analysis to support intercompany pricing strategies. We know what various countries’ tax authorities around the world (including the US) will accept as intercompany pricing for goods and services without being subject to punitive costs.

Transfer pricing is one way to shift income earned in the US to companies owned in foreign countries where it is taxed at a lower rate.

Cross Border Transaction Analysis | We can provide tax planning with respect to a US company’s acquisition of a foreign company or a foreign company’s acquisition of a US company to optimize their tax position. Alternatively, we can reorganize a US company’s foreign activities/structure or a foreign company’s US business activities/structure to obtain significant tax savings.


Captive Insurance Company Tax Structuring
| Proper planning can help ensure deductibility of premium payments and ensure the most tax efficiency out an offshore captive insurance company.

“Double Dip” Financing Structure/Super Holding Company Structure | Optimize a company’s interest deductions to obtain two deductions (one in the US and one in a foreign jurisdiction) and/or to shift income from a high taxed jurisdiction to a very low taxed jurisdiction to lower worldwide effective tax rate.

Offshore Intangible Holding Company | Companies that own and/or plan on developing various intangible assets for exploitation offshore can use this planning technique to lower their worldwide effective tax rate by “trapping” royalties in low taxed jurisdictions.

Okay? Got that? We are subsidizing companies who take jobs overseas and follow the letter of the law in order to maximize their profits – and in many cases, actually CHEAT the US taxpayers.

Why the hell do we work against our own interests here? Why does government work against the interests of most people in this country in order to benefit a very small slice of the top of the heap? And why, why, why do people BELIEVE that this incredible travesty of a tax code is IN THEIR BEST INTEREST?

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This entry was posted on Friday, October 17th, 2008 at 7:53 pm and is filed under Finances, What??. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.
3 Comments so far

  1. Jordan Berg on October 17, 2008 8:28 pm

    This is a really interesting plan. But first $100,000 isn’t really big business, that would be a huge tax rate on small businesses as well. I think that would work if you also gave a tax credit for the cost of providing health care to workers. And could have a similar increasing tax for companies making over $250,000 in pre-stock allocated profits who do not provide health care to their employees. So for every 1 employee not covered .1% tax increase or something like that

  2. Deb on October 17, 2008 9:03 pm

    Oh, I know. I should have used $250,000 in my example, but it’s easier to demonstrate the math when you use smaller numbers. I think that Obama’s plan includes a ‘contribution to a kitty’ to cover the costs of insuring those to whome the employers choose not to cover which McCain calls a “fine”, but which is, in actuality, a tax.

    It’s a time-honored behavioral strategy. You offer a reward for behavior that you want to increase. The reward can be coupled with a penalty for behavior you want to decrease if needed. In this case, the reward you’re offering is in itself a penalty – if you don’t move jobs back here, you pay more taxes. If you do, you pay less taxes.

    I’m a total practical hardass when it comes to economic policy, too. Start tying access to the market to the number of jobs/amount of investment in this country – for domestic companies only. If you’re a domestic company producing goods overseas, you should be penalized.

    I’m sick of hearing the specious argument that “we should let those unskilled labor jobs go overseas and concentrate on training our citizens for higher paying skilled jobs in engineering” or that Americans don’t want those jobs, or that it’s too expensive to do business here because American workers are spoiled and expect to be paid too highly. When companies see a reduction in projected profits as a loss, and the government is more concerned with the return on investment of shareholders, they leave out stakeholders that don’t get a dividend if the company does well. Screw that. Yes, people should get a return on their investment. Responsible companies understand that there’s more at stake than fattening the wallet in the short term. They understand that providing for the basic needs of your workers and offering them the opportunity to better themselves is the way to real profit.

    Thanks for the comment, J. Nice to see you here.

  3. Deb on October 17, 2008 10:56 pm

    Hrm. It occurred to me after I responded that I wasn’t completely clear because I didn’t actually run the numbers on the page that I’d run in my head. For example:

    You make $100,000 in profit – that is your earned income after all deductions. 100% of your jobs are in the U.S. $50,000 of that $100,000 goes right into your pocket without being taxed. You only pay taxes on the other $50,000. The more of your jobs go overseas, the more of your income is taxed, until if you have 100% of your jobs overseas, you’ll pay taxes on $100,000. Does that make a difference in what you were reading?

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