Tag Archives: Multinational

American corporations are expanding outside the United States to avoid high taxes

From Investors Business Daily.

Excerpt:

Walgreen, America’s venerable drug-store chain, is thinking the unthinkable: relocating to Europe. Not because it sees growth and opportunity there, but because of onerous taxes here in the U.S. It’s an ominous trend.

The Financial Times of London calls it “one of the largest tax inversions ever.” That is, a company seeking to avoid punitive taxes in one market by moving to another.

No doubt the FT is right. And after its recent $16 billion takeover of Swiss-based Alliance Boots, it would be easy for Walgreen to remake itself as a Swiss company.

If it did, the Democratic Party’s liberals would no doubt call Walgreen unpatriotic for wanting to lessen its tax burden. In fact, they are responsible for an economic environment so hostile to capital and investment that companies now find it intolerable.

[…]According to an analysis by UBS, Walgreen’s U.S. tax rate is 37.5% — compared with Alliance Boots’ rate in Europe of about 20%. That’s a huge gap, worth billions of dollars a year.

But it’s even worse than that. A recent OECD study says the “integrated tax rate” — taxes on capital and income — for U.S. companies is a nightmarish 67.8% vs. 43.7% for the OECD.

Many companies facing steep tax rates and insane regulations in the U.S. have had enough. They’re keeping their profits overseas. Last week, Senate Finance Committee chief Ron Wyden, an Oregon Democrat, reported U.S. corporations now hold $2.1 trillion in earnings in overseas accounts — a massive amount, roughly equal to 12% of U.S. gross domestic product.

A total of 547 companies — including Apple, GE, Microsoft and Pfizer — have dramatically expanded their so-called foreign indefinitely reinvested earnings overseas, which let them avoid the punishing rates here at home.

[…]Not only are taxes too high, but also new laws such as Dodd-Frank and ObamaCare, a vast expansion of regulation, debt and the size of government, the federal takeover of entire industries, the bullying of Wall Street and demonization of CEOs, and forced CO2 cuts that will hammer manufacturers have made this the least pro-free market U.S. government in generations.

If you make it harder for businesses here to do business (higher taxes and burdensome regulations), then they will expand abroad instead, and in some cases, they will just move completely. How does that help create jobs here? It doesn’t.

Why do corporations ship jobs overseas? What causes outsourcing of jobs?

World Corporate Tax Rates
World Corporate Tax Rates

Here is a news story from Yahoo News that explains the problem and the cause of the problem. (H/T Dad)

Excerpt:

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.