Taxes on Foreign corporate activity

Drudge is healining an article that explains how Google manages to cut its tax burden by arranging its activities overseas so that most corporate taxes are avoided. There is no reason for surprise or outrage here; it is a fact of life. Certain countries set up there tax codes in order to attract foreign firms to set up offices in those countries. A good example is the Netherlands Antilles. A company that funnels its world-wide profits through the Netherlands and then on to the Netherlands Antilles can cap the rate on thos profits at a tax rate of 4%. As a result, Curacao is filled with offices and professional service firms that deal with the large numbers of companies that use this structure. It is one of the main components of the economy down there.

Another action that the companies do is to try to realize their revenues in coutries with lower tax rates. For example, if Google can make a profit of one million dollars on a transaction in the US, it will be left with $650,000 after paying US taxes (wholly aside from state levies). If the same transaction will only profit by $900,000 if done in Ireland due to higher costs there, Google will still be left with about $800,000 after paying Ireland's lower rate corporate income tax. This means that Google would have an incentive to move activities to Ireland even if costs were higher there, because the amount left after taxes would be more than for activities in the USA.

Obama and the Obamacrats call these items "loopholes" in the US tax law that reward companies for moving jobs overseas. The truth is that they are not loopholes. Instead, they are the natural result of the high tax levels of the US system. A reduction in the US tax level to 15% would restore the competative advantage to the USA. Once the tax differential disappeared, the pressure would be to bring jobs back to the USA. That would be using the marketplace to help create jobs. Obama and the Obamacrats, however, prefer to attack the companies as evil. They want to close these "loopholes", a move that will most likely have the effect of driving still more companies out of the US job market. It is not that hard for a company to change its place of incorporation to a tax haven. TYCO used to be incorporated in Bermuda, for example. M estimate is that "closing the loopholes" could easily drive hundreds of thousands of more jobs out of the US permanently.