As I was waiting for “The Amazing Race” to start on Sunday, March 27, I watched Lesley Stahl present her report on 60 Minutes about MultiNational Corporations evading US federal taxes by setting up branches, servers, data, patents and other things in “business friendly” nations. It got me to think about our situation here and how the US can do it better with sound economics. It concerns me that as the nation with probably the most freedom in the world, that we are not the most business friendly nation in the world. Capitalism should flourish here like no place in the world. However, there are people in this country that see the corporation as a greedy bunch of shareholders and board of directors that don’t care about how they make money, just that they make money. I don’t agree with that assessment entirely. The purpose of a corporation is to produce a product or service in order to make money. If there wasn’t money to be made, would there be any incentive to produce new ideas or inventions?
Think of this, if we were to lower taxes on corporations, they could lower the price of their product or service, which in turn spurs demand for the product or service, which means more products sold, which means there is more money to hire more workers to fill the demand. This means more taxes for the federal and state governments because there are more workers earning money. Who pays the taxes for corporations now? Consumers do, when they pay for the goods or services of the corporations. Corporations always add their taxes or fees to the cost of goods sold, and then they adjust the price to what the market can bear. Consumers are essentially taxed twice. Their own income tax and the corporation’s income tax of product or service they purchased. If there were no corporate income tax, the cost to consumers would be lower. Now, I’m not saying this is what will happen in all cases, because as we know there are greedy people in this world, but the market will find them and they will fail because their approach was greed for themselves and not what is good for the corporation.
The argument I usually get back from the people that think corporations are evil and greedy is the CEO will just pay him/her and the officers more money with the extra money they get from paying less taxes. If they do that, then they should be fired by the shareholders/board of directors. They are thinking of themselves before the purpose of their job. The only logical choice is to lower prices and reinvest the money in the corporation in order to make more money and hire more workers, and the cycle continues. Just read or watch what the CEO of Cisco John Chambers told Lesley Stahl.
Chambers told Stahl Cisco has almost $40 billion overseas that could be brought back to the U.S.
The total amount of money U.S. companies have trapped overseas is $1.2 trillion. Chambers is advocating for a one-time tax break to allow them to bring that money home at a rate of, say five percent. That would, he says, stimulate the economy and create jobs.
"What is your downside for money that isn't going to come back anyhow? I'd say your downside is zero," he told Stahl.
But the Obama administration opposed this idea. When it was tried in 2005, the Treasury did rake in billions of dollars, though very few jobs were created.
"What if tomorrow Congress passed a quickie law and the tax rate was 20 percent? Would that solve everything?" Stahl asked.
"I think it is the most important ingredient that we have to think about being competitive," Chambers replied.
"You lower the rate from 35 percent to 20 percent. You lose something like $2 trillion in taxes. We have a horrible deficit crisis, debt crisis. That's almost too much money to lose. What's your answer to that?" Stahl asked.
"My answer's very simple: every other developed country in the world has already done this. I'm not asking to give me a favor, or a hand out," Chambers replied.
"You know what: it sounds it," Stahl remarked.
Chambers replied, "All we're asking is: Give us a level playing field. Get us close."
Mr. Chambers, I want to go a step further. Here is my proposal:
First, change the current federal income tax system to a flat tax of at least 15%, but no more than 18% with no loopholes for anyone. If you work here, no matter your income, you will have a stake in this country. Second, change the tax structure on corporations so it benefits the corporations that use the US as their home for their headquarters, patents, call centers, servers, holdings, and especially employees.
51-100% of all holdings in the US = 0% Corporate income tax
0-50% of all holdings outside the US = 35% Corporate Income Tax.
If we use these numbers and we look at let’s say Ford and Toyota. Both have a global presence, but one has more than 50% of its business in the US and one doesn’t. Ford would be able to lower the cost of a car vs. Toyota, which could mean more sales, more jobs, and so on. Another aspect that could come from this is that the US trade deficit could turn into a surplus. It could bring the manufacturing of products to the US.
If we could just bring home the US companies that move to other countries due to the tax burden, we could see a dramatic increase in the amount of jobs, GDP, and tax revenues (due to the new workers). It’s something to really look at and decide if the US is going to be the friendliest nation to business or continue down a path where we foster innovation, but then watch it go overseas because it’s too expensive to do business in the US.
The decision is ours.
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