Moving Day April 1, 2012
While most people think of April 1 as April Fools’ Day, those in the business world this year may be thinking now “I am the fool.” April 1, 2012 is the day that the corporate tax in the United States becomes officially the highest rate in the world. (see chart below) Japan has dropped its rate from 39.5percent to 36.8 percent. Leaving the United States with a average combined federal and state rate just over 39 percent.
The United States statutory rate of 35 percent is seldom paid due to loopholes. This rate also prevents multinational companies from up streaming funds to the United States. To bring those profits back they are looking at loses on the bottom line due to tax liabilities. It is better to just invest that overseas and expand business outside the United States.
Using numbers from the Organisation for Economic Co-operation and Development (OECD) see their 2011 Basic (non-targeted) corporate income tax rates, a review of column “I” shows the “Combined corporate income tax rate.” This is defined as “the basic combined central and sub-central (statutory) corporate income tax rate given by the adjusted central government rate plus the sub-central rate.” Or in plain English it is average combined national and state rate.
April 1, 2012 the top rates will look something like this:
Within 3 years the rate in Japan will drop again to settle at 34.5 percent. Even the government of Queen Elizabeth II only has a rate of 26.0 percent. And it was not that long ago that we had issues with one of her predecessors’ government over tax rates and spent several years fighting over the question. Even our neighbors to the north, in Canada are sitting on 27.6 percent rate.
But the pitfall in American law is that the United States is virtually alone in trying to tax offshore earnings, see NY Times. Yet an American company can avoid those taxes by not bringing their money back to the United States.
The downside is that that money is not invested in the United States. It is not used to pay dividends to shareholders. It does not move into the American economy. It has no benefit to anyone in the United States.
The progressives in both parties would say force them to bring it back or just tax it anyway. That would work for about 24 hours most likely less. Just picture the fanfare as Coca-Cola moves their recipe from the vault in their corporate headquarters in Atlanta, GA to a fleet of armored cars to put it on a plane to Switzerland or Ireland or some other country. Less than 12 hours later the CEO of Coca-Cola is announcing to the world that they are not longer a United States based company and that their shareholders’ dividends are once again safe.
Let us for a minute, step back in time and look at the words of one of the hero’s for the left, John F. Kennedy. On a Friday, January 20, 1961 in his Inaugural Address he said “And yet the same revolutionary beliefs for which our forebears fought are still at issue around the globe—the belief that the rights of man come not from the generosity of the state, but from the hand of God.” So then, if God only asks for 10 percent off the top, why should the state be any different.
Take it one step more and give the federal and state each a cut, that totals only 20 percent, that should be more than enough. Our course that would limit the government to doing what they are supposed to do.
Kennedy may offer the answer, even if somewhat Biblical. Rather than face an exodus, as was the case in Egypt. We should become the “Promised Land.” We should grab our axes, mount our asses and fix our tax code. It is time to be that shining city on a hill, again.