Let's assume that you are the head of a large American corporation with operations around the world. Your headquarters are in the Chicago area, but 62% of you revenues come from places outside the USA. Over the last 15 years, your company has amassed 25 billion dollars overseas, and that cash is sitting in bonds and accounts in London, Hong Kong and other world financial capitals. That is because if you were to bring that money back to the USA, your company would have to pay 35% (or roughly 8.75 billion dollars in taxes to the federal government.
Just think how this would affect the decisions that you make. Clearly, it would make it much more likely that new facilities would be built outside the USA rather than here at home. A manufacturing facility that cost half a billion dollars in Europe would cost 35% more here in the USA because you would need to pay the tax on the cash used to fund it. So the tax put on the foreign profits actually works to prevent economic growth and job creation here in the USA and it pushes those activities to other countries.
Now assume that the federal government were to impose a tax of 14% on the money held overseas. Suddenly, your company (which has followed the law exactly) would get hit with a tax bill of 3.5 billion dollars. Further, if you brought any cash home to pay that tax bill, you would also get hit with the tax on repatriated amounts. The total tax hit would be something like $5 billion. This is the latest tax proposal to come from president Obama; it is a major grab of corporate overseas profits.
Let's think how that would affect your thinking as CEO. First, you need to keep in mind that there are no other large developed countries that tax overseas profits in this way. In most countries, corporate profits are taxed in the country where earned only. In other words, if your company were incorporated in most other countries, the $5 billion tax grab would never take place. So what would that mean? In many cases, you would try to move your company outside the USA. Remember, if your company was incorporated and headquartered in London, it would never have to pay the $5 billion in additional taxes now being proposed by Obama. There would still be taxes owing on American operations, the same taxes that are owing now. The threat of taxing overseas profits, however, would be gone. It is reasonable, therefore, to assume that you would try to move your company's headquarters away from Chicago, away from Illinois, and away from the USA. Just think how many jobs for lawyers, accountants, bankers, and corporate executives would be lost in the USA as company after company fled these taxes.
The goal of restructuring the US tax code should be to increase economic activity and job creation, not to destroy them. Obama has got it totally backwards. That may not be unusual, but it is nevertheless annoying. America needs a pro-growth leader who has at least a rudimentary understanding of economics. Instead we have a leftist ideologue who has no concept of economic realities.
Just think how this would affect the decisions that you make. Clearly, it would make it much more likely that new facilities would be built outside the USA rather than here at home. A manufacturing facility that cost half a billion dollars in Europe would cost 35% more here in the USA because you would need to pay the tax on the cash used to fund it. So the tax put on the foreign profits actually works to prevent economic growth and job creation here in the USA and it pushes those activities to other countries.
Now assume that the federal government were to impose a tax of 14% on the money held overseas. Suddenly, your company (which has followed the law exactly) would get hit with a tax bill of 3.5 billion dollars. Further, if you brought any cash home to pay that tax bill, you would also get hit with the tax on repatriated amounts. The total tax hit would be something like $5 billion. This is the latest tax proposal to come from president Obama; it is a major grab of corporate overseas profits.
Let's think how that would affect your thinking as CEO. First, you need to keep in mind that there are no other large developed countries that tax overseas profits in this way. In most countries, corporate profits are taxed in the country where earned only. In other words, if your company were incorporated in most other countries, the $5 billion tax grab would never take place. So what would that mean? In many cases, you would try to move your company outside the USA. Remember, if your company was incorporated and headquartered in London, it would never have to pay the $5 billion in additional taxes now being proposed by Obama. There would still be taxes owing on American operations, the same taxes that are owing now. The threat of taxing overseas profits, however, would be gone. It is reasonable, therefore, to assume that you would try to move your company's headquarters away from Chicago, away from Illinois, and away from the USA. Just think how many jobs for lawyers, accountants, bankers, and corporate executives would be lost in the USA as company after company fled these taxes.
The goal of restructuring the US tax code should be to increase economic activity and job creation, not to destroy them. Obama has got it totally backwards. That may not be unusual, but it is nevertheless annoying. America needs a pro-growth leader who has at least a rudimentary understanding of economics. Instead we have a leftist ideologue who has no concept of economic realities.
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