Here is a news story from Yahoo News that explains the problem and the cause of the problem. (H/T Dad)
Large U.S. companies boosted their offshore earnings by 15 percent last year to a record $1.9 trillion, avoiding hefty tax bills by keeping the profits abroad, according to a new report.
The overseas earnings stockpile has climbed by 70 percent over the past five years, said research firm Audit Analytics. Data in its report covers the Russell 3000 index of the largest U.S. corporations.
U.S.-based multinationals do not have to pay U.S. corporate income tax on foreign earnings as long as the earnings do not enter the United States. Accounting rules also let the companies avoid recognizing a tax expense if management intends to keep the earnings indefinitely reinvested overseas.
“It would probably be nice to have this money in our country being used in our economy, but at the moment we see it growing elsewhere,” said Don Whalen, general counsel and director of research at Audit Analytics.
Conglomerate General Electric Co (GE.N), had the most indefinitely reinvested overseas earnings, at about $108 billion, while drugmaker Pfizer Inc (PFE.N) was next with $73 billion, according to Audit Analytics.
The simple answer is that Americans believe that corporations need to pay high taxes and operate under burdensome regulations. This eats into their profits, making it harder for them to grow and expand. The plain truth is that it is easier for corporations to expand and hire in countries with lower taxes and fewer regulations. Besides, who wants to be wiped out by a nuisance lawsuit just because someone spills coffee on themselves and then refuses to take responsibility? The smart play is to just opt out completely, and that’s what many corporations do – earning higher profits in more business-friendly countries.