Obama Thinks It’s “Unfair,” I Think It’s Good Business

Repatriation Tax

The US corporate tax system is a mess.

It’s no shock if you’ve researched the plethora of taxes, fines, and regulations that make up the US tax system.

High corporate tax rates, harsh business restrictions, and routine vilification have set US business back in the world economy.

Heck, US companies can’t make foreign investments without being labeled an enemy of the state by Congress.

If you try to escape the heavy tax burden, like the pharmaceutical company AbbVie did, you’re immediately an evil scumbag corporation.

The victims are treated as the enemy in this lopsided tax system.

In the 21st century, where the global economy is the norm, the US continually acts as if that’s not the case.

Companies acquire foreign companies. It’s part of how a global economy operates.

Companies will locate their headquarters to whichever country has the most competitive tax system.

The US system doesn’t have a competitive tax system. In fact, we punish foreign acquisitions through what’s called a repatriation tax.

It’s one of the many reasons why the US lags behind other countries in business attractiveness.

What’s the Repatriation Tax?

The Repatriation tax is what’s collected on companies who send their overseas profits back home.

Imagine you’re Nike. Your company is based in the US, but you have foreign offices and stores in Europe and South America.

At the end of the year, your profit from these foreign regions comes back to the US.

By bringing that money back home, you have to pay a repatriation tax on it.

You’re headquartered in the US, you make money overseas, you move that money back to your home offices in the US, you have to pay a tax on it.

It’s a tax on profit that wasn’t made domestically.

Why’s it so Controversial?

It’s no surprise that US companies have made a sport out of dodging taxes. With a 35% corporate tax, can you blame them?

The repatriation tax has its fair share of dodges too.

By refusing to move their offshore profit back home, companies stall the taxes back home. That’s because corporate taxes can’t be filed until all forms of profit come in (both domestic and foreign).

By stalling their foreign investments, they stall their domestic taxes too.

Members of Congress, and the president himself loath this practice.

President Obama called it “Unfair”.

Bob McIntyre, president of Citizens for Tax Justice, said, “The things these companies are doing, 20 years ago would almost certainly have been illegal.”

Many multinational companies reincorporate with foreign businesses in what’s called “inversion.” This tactic allows companies to have all the benefits of operating in the US without having to pay US taxes.

76 companies have “inverted” in the past 3 decades. And this year, 15 inversion deals have been proposed.

Critics have been fast to claim that these companies are costing the government billions of dollars in taxes.

But the cause behind this rampant tax dodging is more important than the money the government never got its hands on.

The Noncompetitive Nature of the US Tax System

There’s something to be said about failing to make the top ten list of economic free nations.

There’s also something to be said about having the third highest corporate tax rate in the world. The US is behind Chad and the United Arab Emirates with a marginal corporate tax rate of 39.1% (including state taxes).

What kind of incentive does the US have to attract businesses?

Who wants to do business in a country that taxes your business to death? Not me.

A company is out there to sell a product or service, and make a profit. Loyalty to a specific country isn’t in the equation.

You either provide an incentive for me to move my business to your country, or I take my business somewhere else.

The Economics Behind it

The economics behind tax dodging are clear.

The US corporate tax system fines success. It’s a system that tries to grab as much as it can. The repatriation tax is a good example of this.

Going back to the Nike example earlier, your foreign profit is already taxed by the nations you did business in.

The United States comes along and says you have pay more taxes on those profits.

You have to pay foreign taxes, repatriation taxes, and domestic taxes. And these taxes aren’t small percentages.

No wonder companies move to low tax nations.

The US government has a misguided view on business and the economy.

One way to fix this misguided view is to switch to a Territorial tax system.

In this system, the US would only tax revenue made domestically. Everything else would be left alone.

Not only would it allow businesses to move their offshore money back home, it would also give them more options for investments.

High corporate taxes like the repatriation tax punish success and stifle investment. They encourage companies to “invert” and move offshore.

It reduces domestic and foreign investment, and shores up money that could otherwise be invested in the American economy.

And let’s face it, companies don’t owe the US government an ounce of loyalty. This isn’t FDR’s Great Depression, the fascist blue eagle is no longer a thing….I hope.

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About John-Pierre Maeli

Keeping it simple and crystal clear, because anything else is useless. I'm here to not only inform you, but to also connect with you. That's what The Political Informer is all about. Feel free to follow me on either Twitter or Google+ Let's talk!

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