I figured some of you eggheads could enlighten me on something. I didn't study economics much in school, so I usually have to rely on horse sense......which doesn't always take me too far in such a complicated subject. I was laying in bed this morning while my wife was on the computer. She stands up, turns around, looks at me, and says, "Man, some of Kerry's tax ideas are ****ED up!" I inquired as to what she was talking about, and she said that he's looking to remove the provision that allows corporations to defer taxes on offshore income as long as they leave those earnings offshore. Basically, in order to defer the taxes, a US corporation just has to reinvest any earnings offshore. Her point.....and mind you....she's an ex-senior trial attorney for the USDOJ specializing in tax and working as an International Tax consultant in what is probably the highest regarded IT group in arguably the largest accounting firm in the world.......is that US corporations are already at a disadvantage because most other countries don't penalize their country's corporations with this double taxation. Basically, if you're a US corporation with operations offshore, you have to pay the corporate taxes of the country you are working in, and then whatever is left, if you bring it back home to the US, you're taxed again. In her mind, a US company's only line of defence is this deferral mechanism that allows the company to defer the taxes if they leave the earnings offshore. Now, I'm not sure it's a great idea to just suddenly pull the plug on this when US company's have been tax planning around this for however long, but it sure seems that Kerry is on the right track. I'm thinking my wife might be a bit blinded by the fact that this is a tax law that she's accustomed to working around on a day to day basis. My question is this: How in the hell did we allow this in the first place? This “deferral of foreign earned income” by reinvesting it offshore is without a doubt, the dumbest thing I’ve ever heard of. Who in the **** came up with the bright idea of incentivising US corporations to invest offshore with no mechanism to incentivise bringing the earnings back home? That’s a great plan for foreign countries, but it sure sucks for the US. Am I missing something?
Actually what Kerry's ideas are trying to stop are companies that operate in the U.S. receive the benefits of being a corporation here in the U.S. but get a PO box or set up a small office somewhere else, and then don't pay their fair share of taxes. By doing that the average citizen has to make up the difference in lost revenue. Kerry would rather that companies are American companies be required to pay their fare share, so that the average middle class persons tax burdon won't be so heavy. If someone has been working with the corporate tax code they would indeed be alarmed. Corporations would be having one of their long time loopholes taken away from them. While it might inconvenience large corporations, the average tax payer will benefit. I'm not sure when the policy that moved them offshore for tax breaks started. Sorry I couldn't help with your main question.
If US company A has operations offshore in Country B, any earnings will be taxed offshore at Country B's corporate tax rate. If they bring any of those after tax earnings back to the US, the company is taxed again at the US corporate tax rate. If anything left is distributed as dividends, it's taxed a third time. If the company reinvests the money offshore instead of bringing it home, they can defer the US taxes. I'd hardly call that a loophole. Sure, it might improve their bottom line, but like I said to my wife, I live in Texas, but if I have a billion dollars deposited in the bank of the moon, and I can’t bring that money from the moon to earth, am I really still a billionaire? It just seems ridiculous to me that we incentivize companies to not bring home any of their offshore earnings. My wife's take is that we need to make sure that US companies can remain competitive in the global marketplace, and she's right........but geez, this should have never been this way in the first place. Unless we really enjoy funding the economic growth of countries that seem to universally hate us these days. BTW....this tax provision has been place since Kennedy.
This “deferral of foreign earned income” by reinvesting it offshore is without a doubt, the dumbest thing I’ve ever heard of. Who in the **** came up with the bright idea of incentivising US corporations to invest offshore with no mechanism to incentivise bringing the earnings back home? That’s a great plan for foreign countries, but it sure sucks for the US. Let me say I don't want to attack your wife personally. I do think you are right about your wife buying the company line from the industry she works in. Her job is to reduce taxes on large corporations, whether it benefits the US or average American or not. That is why I could not devote my life to that type of work. It is sort of like the when Bush abolished the tax on the approximately 3,000 plus estates that settle each year that are worth over $5 million. The billions lost to tax revenue must be made up by middle class taxpayers. Of course in the imaginary world of eonc 101 as preached by Rush Limbaugh, this will not effect roads, water purification plants, public school, libraries, hospitals, UT tuition etc. as it can all be made up for by reduction in wasteful spending.
You failed you give or tell us where your beautiful wife got her "Kerry" numbers from? Perspective is important at least....don't you agree?
US corporations are already at a disadvantage because most other countries don't penalize their country's corporations with this double taxation. Pole, let me also say that while this argument sounds good, "taxes are bad, why wouldn't the horrible DOUBLE taxation be even worse?, US corporations probably still pay less than the foreign corporations. I know that the share of taxes paid by US corporations has gone down dramatically. Most of the talk of DOUBLE taxation is like the talk of the DEATH tax rhetoric on the 3,000 $5 million dollar estates, just anti-taxer political rehetoric. Ask your wife if she is saying that overall US corporations pay higher corporate taxes than most foreign companies? When the shareholders redeem their shares are they taxed less than in the US? If so, then perhaps she has an argument that the poor things are at such a disadvatange compared with other countries' corporations ********************* THE DECLINE OF CORPORATE INCOME TAX REVENUES By Joel Friedman A weak economy, new tax breaks, and aggressive tax sheltering have pushed corporate income tax receipts down to historically low levels, both relative to the size of the economy and as a share of total federal revenues. According to the most recent budget projections of the Congressional Budget Office, corporate revenues will remain at historically low levels even after the economy recovers, and even if the large new corporate tax breaks enacted in 2002 and 2003 are allowed to expire on schedule. Deficits over the next decade are now projected to be enormous in size. A joint analysis by the Center on Budget and Policy Priorities, the Concord Coalition, and the Committee for Economic Development projects deficits totaling $5 trillion through 2013. An analysis by Brookings economists reaches a very similar conclusion, while Goldman Sachs projects deficits totaling $5.5 trillion.[1] Despite the deteriorating fiscal outlook and the historically low corporate revenue collections we already face, Congress nonetheless seems poised to shower more tax breaks on corporations that would cause deficits to grow substantially larger over time (see box). Treasury Department figures show that actual corporate income tax revenues fell to $132 billion in 2003, down 36 percent from $207 billion in 2000. As a result of these low levels, corporate revenues in 2003 represented only 1.2 percent of the Gross Domestic Product (the basic measure of the size of the economy), the lowest level since 1983, the year in which corporate receipts plummeted to levels last seen in the 1930s. Corporate revenues represented only 7.4 percent of all federal tax receipts in 2003. With the exception of 1983, this represents the lowest level on record (these data go back to 1934). Corporate Tax Cuts on the Congressional Agenda Pressure to cut taxes for corporations is likely to intensify this fall as Congress takes action to comply with a recent ruling by the World Trade Organization that tax subsidies provided to U.S. exporters violate trade agreements. The WTO authorized European countries to impose sanctions of $4 billion a year on U.S. exports if these subsidies are not eliminated. Repealing these export subsidies would raise about $50 billion in revenues over ten years, which creates an opportunity for supporters of corporate tax cuts to push for at least that much in new corporate tax breaks. Indeed, both the measure that the Senate Finance Committee adopted on October 1 (S. 1637) and the measure introduced by House Ways and Means Chairman Bill Thomas (H.R. 2896) would provide significantly more than $50 billion in new tax cuts to corporations. The Thomas bill would provide corporate tax breaks totaling $200 billion over ten years while offering revenue-raising offsets of only $72 billion. As a result, the package would cost $128 billion over the decade. Moreover, the measure includes a number of tax cuts that artificially expire before the end of the ten-year period; as a result, the true cost of the bill, assuming extension of these tax breaks (many of which, such as the popular research and experimentation tax credit, are sure to be extended) is substantially higher than the reported $128 billion. The package adopted by the Senate Finance Committee on October 1 is ostensibly deficit-neutral, with revenue-raising provisions in the bill that appear to equal the cost of the bill’s new corporate tax breaks over the 2004-2013 period. But the bill’s appearance of revenue neutrality rests upon gimmicks. Several of its new tax cuts do not become fully effective until late in the decade, which makes their cost in the ten-year budget window much smaller than the cost of continuing these tax cuts indefinitely. The result is a serious mismatch over time between the revenue raised by the “offsets” in the bill and the revenue lost by the tax cuts. This can be seen in Joint Tax Committee figures showing that the measure would lose more than $9 billion in the second half of the ten-year period and lose more than $4 billion in 2013 alone. Over the long run, the bill is not deficit neutral and would produce sizeable revenue losses, thereby enlarging long-term deficits that already are frightening in size. Concerns about the corporate tax-cut measures under consideration in both the House and Senate extend beyond their high cost. Although a detailed analysis of these measures is beyond the scope of this paper, both bills would further erode the corporate income tax base and potentially distort the allocation of economic resources. In an attempt to satisfy competing business interests, these bills offer dozens of targeted tax breaks for U.S. manufacturers and U.S. multinational corporations; tax breaks targeted in this manner can create economic inefficiencies by favoring certain activities over others that may be economically superior but less profitable once the tax break is factored in. Both measures also provide a temporary tax reduction for the repatriation of overseas profits. This type of tax amnesty rewards firms that have sheltered funds overseas and potentially encourages more sheltering, as multinationals assume that the tax amnesty will be repeated in the future. Further, provisions in the Thomas bill would weaken current anti-abuse rules, creating new opportunities for U.S. multinationals to shelter profits overseas. Corporate income tax revenues are sensitive to economic conditions, and the recent slowdown in the economy has played a significant role in the collapse of corporate revenues. But the economy explains only part of the decline. Tax cuts for corporations enacted over the past few years have also contributed significantly. Based on Joint Committee on Taxation estimates, provisions enacted in 2002 and 2003 reduced taxes for businesses by over $50 billion in 2003, and corporations are by far the largest beneficiaries of these tax breaks. Corporate revenues are further diminished by aggressive tax avoidance strategies, including the sheltering of corporate profits overseas. No precise estimates of the extent of these tax shelter activities exist. In testimony before the Senate Finance Committee in March 2000, the Joint Committee on Taxation stated that “the data are not sufficiently refined to provide a reliable measure of corporate tax shelter activity.” Using the evidence that is available, however, the Joint Committee concluded that “there is a corporate tax shelter problem” and that “the problem is becoming widespread and significant.”[2] Similarly, former IRS Commissioner Charles Rossotti identified abusive corporate tax shelters as "one of the most serious and current compliance problem areas." [3] Internal IRS studies on tax sheltering, recently disclosed by the General Accounting Office, indicate that “tens of billions of dollars of taxes are being improperly avoided and the potential for the proliferation of abusive tax shelters is strong.”[4]........ link
Good point; I didn't ask where she read it, and I didn't do much research myself. They usually get wind of relevant stuff immediately, so I made the wrong assumption that it hadn't hit major news media yet. This is on the main page of yahoo today: http://story.news.yahoo.com/news?tmpl=story&cid=514&e=2&u=/ap/20040326/ap_on_el_pr/kerry_economy Most of the article is a bunch of rhetoric, but I found these two paragraphs in the middle: Just from the wording, I have to agree with my wife somewhat. I think getting rid of this tax incentive is paramount, but not at the expense of hamstringing US companies in the global marketplace. Still, I'm sure there's people out there smart enough to figure out the most cost effective way for this law to work for them. And it should certainly create some jobs here in the US.....though it seems to be that it will tend to turn the US into more of an island rather than continuing player in the global economy.
The question I would ask is "do foreign companies who operate in the US get taxed both in the US and in their home countries?" If so, then it would be fair to say that we would not be hampering US corporations unfairly in the global marketplace.
For the most part, no they don't. I was doing a search on this, and I found a really good article on the subject, but it was posted on a conservative website, so I imagine it would go over real well here.....kind of like a lead baloon. Perhaps I should just meander back over to the regular hangout.
I don't presume to speak for anyone else, but I know I'd like to see it. I do get the feeling, though, that many of us around here who are perceived as leftists are more sort of classically libertarian and by extension quite open to conservative fiscal ideas. Just because I think GW is a lying, psychopathic criminal and that the PNAC is evil incarnate doesn't mean that I think that US businesses should be taxed into irrelevance.
I admittedly pale in knowledge to a tax attorney but aren't Offshore Corporate entities formed in select countries that have little or no corporate taxes; allowing the parent companies to manage their income flows to avoid US taxation? The tax proposal could be said to remove the incentive of the corporations to avoid paying their fare share of taxes in the contry in which they derive their income. They certainly benefit more from the United States' roads, airports, defense, medical care, police protection and envromental clean-up than they do from Bermuda or The Cayman Islands.
