Reuters is reporting today on a study done by what Reuters calls "left-leaning tax group Citizens for Tax Justice". According to the study, a large number of major American corporations have added offshore cash to their holdings and taxes may be a factor in this practice.
I have to admit that when I read this article, I started laughing. The fact is that under the American tax code, profits earned by an American company on foreign activities are not taxable in the USA until those profits are brought back to America. In other words, if Ford earns half a billion dollars building cars in India, it will pay taxes on those earnings to India, but not to the USA unless Ford actually brings the cash back home to America. This is an idiotic system that provides a major incentive for American companies to keep the cash out of the country. After all, the tax rate in the USA is 35%, a rate higher than any other country in the world. That means that all those multinational companies with headquarters in the USA do not bring their cash back to America to avoid paying taxes.
The study made me laugh because it is presented in a way that indicates that these companies are somehow hiding their profits overseas. No, they are being forces by the government to do that. If you ran a large company and had a billion dollars in cash sitting in Europe which you had earned from activities there, would you keep the full billion in Europe or bring it back to America where you would suddenly have to pay $350 million in taxes? The truth is that the American tax system gives these companies a major incentive to keep the cash out of the country.
The sad thing is that there is close to $2 trillion now held in these overseas accounts. If Congress and president Obama could agree on a temporary tax cut so that the funds could be brought home with only a 5% tax, the USA would surely see something like an extra trillion dollars flow into our economy. That movement would boost economic growth better than almost any other move that could be made. The problem, however, is that such a move would only help the private economy without gaining the government its 35% share of the funds. The Democrats consider a move like this which would jump start the economy to be nothing more than a sell out to big corporations. They prefer to keep the tax rate high and the economic growth rate low.
I have to admit that when I read this article, I started laughing. The fact is that under the American tax code, profits earned by an American company on foreign activities are not taxable in the USA until those profits are brought back to America. In other words, if Ford earns half a billion dollars building cars in India, it will pay taxes on those earnings to India, but not to the USA unless Ford actually brings the cash back home to America. This is an idiotic system that provides a major incentive for American companies to keep the cash out of the country. After all, the tax rate in the USA is 35%, a rate higher than any other country in the world. That means that all those multinational companies with headquarters in the USA do not bring their cash back to America to avoid paying taxes.
The study made me laugh because it is presented in a way that indicates that these companies are somehow hiding their profits overseas. No, they are being forces by the government to do that. If you ran a large company and had a billion dollars in cash sitting in Europe which you had earned from activities there, would you keep the full billion in Europe or bring it back to America where you would suddenly have to pay $350 million in taxes? The truth is that the American tax system gives these companies a major incentive to keep the cash out of the country.
The sad thing is that there is close to $2 trillion now held in these overseas accounts. If Congress and president Obama could agree on a temporary tax cut so that the funds could be brought home with only a 5% tax, the USA would surely see something like an extra trillion dollars flow into our economy. That movement would boost economic growth better than almost any other move that could be made. The problem, however, is that such a move would only help the private economy without gaining the government its 35% share of the funds. The Democrats consider a move like this which would jump start the economy to be nothing more than a sell out to big corporations. They prefer to keep the tax rate high and the economic growth rate low.
No comments:
Post a Comment