San Juan Mountains

San Juan Mountains
San Juan Mountains: Grenadier Range

Saturday, April 16, 2016

Corporate Profits Should Be Tax Free

The idea of corporate inversions is getting a lot of press recently.  King Obama made a big deal about them during a press conference this past week.  According to this website, "A corporate inversion is when a US company merges with a smaller foreign firm and adopts its address to avoid paying domestic taxes on foreign earnings. Many do this instead of upping sticks and redomiciling abroad, which is usually a long, costly and painful process—mergers are a handy short-cut. Inversions aren’t illegal, but politicians hate them since they love maximizing tax revenue. Hence the White House has been chipping away at inversions, in the name of 'economic patriotism.'"  Economic patriotism eh?  That sounds like Orwellilan doublespeak to me.  Since when is it a patriotic thing to pay taxes, especially when those taxes are fundamentally immoral?
The Socialist Democracy of Amerika is one of only three countries in the world that taxes its profit seeking corporations for profits earned from operations outside the country.  There is something fundamentally unfair about taxing the profits of a company that are earned in another country.  The country in which the profits are earned is taxing those profits and then the IRS piles on and taxes them again.  The practice of merging with a foreign firm to avoid having to pay taxes on profits earned in that foreign firm's country makes good economic sense.  It is in the best interest of the shareholders of the company, which is what the Board of Directors is charged to do, and it is not an unpatriotic act, whatever that might be, to pay less taxes than the law currently requires.  
Just how much potential revenue is lost to the IRS when firms invert?  According to that same article, "Contrary to what many politicians argue, corporate inversions aren’t economic bogeymen bleeding Uncle Sam dry. Companies don’t invert to avoid paying all taxes—they still pay US rates on profits booked domestically, just as they always did. Inverting simply lets them avoid US taxes on profits earned abroad....Though it is tough to estimate just how much inversions are costing the country, as there is no counterfactual, one group in 2014 put the number at about $20 billion over the next 10 years. That’s $2 billion a year—sounds like a lot! But consider:  in the current fiscal year through February 29, 2016, a period of four months, the US took in almost $600 billion in individual income taxes alone." So there you have it.  The brouhaha about corporate taxes is not really about revenue.  It is about politicking and career politicians, surprise, surprise, taking anti-corporate stances in order to appeal to the masses of ignorant and envy-filled voters.
cnbc.com published a story this weekend with a very different view of corporate inversions.  In case you do not know, cnbc.com is not a pro-business website.  Although the website ostensibly is dedicated to reporting business news, it is actually committed to an activist Keynesian and pro-statist economic position.  The good folks at cnbc.com never met a tax they didn't like and they certainly agree that it is the patriotic duty of every profit seeking corporation to do all it can to maximize its tax payments to the SDA Treasury.  According to this story, "Big multinational companies that shelter overseas profits from federal taxation cost the U.S. economy more than $100 billion a year by withholding more than $1 trillion collectively, according to a new study that may inflame the debate over tax fairness.  This week, anti-poverty group Oxfam America published a report that analyzed the financial reports of the 50 largest publicly traded U.S. companies. The organization found that behemoths such as Apple, General Electric, Microsoft and Google engage in tax havens that costs the U.S. $111 billion annually. Apple was cited by Oxfam as one of the biggest corporate offenders, holding some $181 billion in money offshore, followed by GE's $119 billion and Microsoft's $108 billion. The U.S's effective corporate tax rate is 35 percent, but the study found that companies used a variety of tax strategies to cut that rate to just 26.5 percent—with only 5 of the 50 companies paying the full 35 percent." Someone is not telling the truth.  Can you guess who it is?
According to one source corporate inversions "cost" the SDA Treasury $2 billion per year and according to another source they "cost" the SDA Treasury $100 billion per year.  That is quite a difference, don't you think?  The difference can be accounted for by the fact that the Oxfam American study presupposes that all profits earned in a foreign country must be repatriated to the SDA.   Oxfam simply took the annual reports of some companies and multiplied their total foreign profits by 35%.  Although that makes for an interesting, and inflammatory, story to tell, it is very far from economic reality.  Apple, the worst offender we are told, has profitable business operations all over the world.  Why should the fact that Apple is domiciled in the SDA mean that a foreign branch of that company, earning profits on goods produced in foreign lands and sold to the stinkin' foreigners who live there, should be legally required to pay taxes to the IRS on those foreign profits?  The arrogant and anti-business career politicians and bureaucrats who believe that fiction are betraying their real motivations.  They want as much money as they can get to expand their political empires and they will stop at nothing to raise revenues.  Taxing foreign profits made on sales of goods produced in foreign lands and sold to citizens living in foreign lands just because the parent company files an SDA corporate tax return is grossly unfair and immoral. Somebody needs to stand up to these lying thieves and put an end to their wretched behavior.
Another tactic commonly used by the "tax businesses now" crowd has to do with their definition of a subsidy.  Anyone with a lick of common sense understands that a subsidy is a direct payment from the treasury of a government to a company in exchange for a future vote.  Famous subsidies include the money given to ethanol producers, sugar producers and the state-worshiping folks who operate wind farms.   But if you Google "subsidy" you will be surprised to discover that the list of companies receiving them is dominated by oil companies.  How can that be?  Digging beneath the rhetoric of the socialists who prepare those lists you will find that they have redefined what a subsidy is.  According to them, an oil company receives a government subsidy when it reduces it corporate tax burden by claiming deductible expenses related to the discovery, extraction and processing of oil.  They wildly claim that tax deductions taken for drilling costs are a subsidy.  They argue that income reducing depletion allowances are a subsidy.  It is all utter nonsense but it works to inflame the infantile and envy-filled minds of the business hating socialists among us.  Applying the same standard used by the socialists who hate profit seeking businesses to your personal income tax return would mean you receive a government subsidy when you reduce your gross income by subtracting your personal exemptions, interest payment deductions and charitable contributions.  Yet the same people who would scream to high heaven about their right to deduct their mortgage interest line up against profit seeking corporations for deducting the interest paid on their business loans.  Go figure.
Last year corporate income taxes made up about 11% of all federal revenues.  In other words, corporate taxes are a small fish in a big pond.  This once again illustrates that all of the talk and publicity about corporate taxation is more about propaganda than it is fiscal policy.  Let me go out on a limb and make a bold statement.  Corporate taxes should not exist.  Corporate taxes are immoral.  Corporate taxes are theft.  Now let me explain why.
Corporate taxable income is an accounting fiction and nothing else.  In reality there is no such thing as a corporate profit.  A profit seeking corporation will have gross revenues from its operations and it will then deduct whatever the IRS permits it to deduct as business expenses.  Whatever is left over is deemed to be a taxable profit and taxed at a flat 35% rate.  This sounds reasonable for people who are accustomed to filing personal tax returns but a corporation is not a person.  The money that is left over, called "profits" by the IRS, can and will eventually be used for a multitude of activities and should never be taxed.  If the money is saved, with the intention of using it to purchase capital equipment a year later, it is taxed despite the fact it is going to be spent on business expansion.  Corporations keep money in cash because they plan on doing something with it later, not because their CEOs like going to the vault and dancing atop mounds of gold coins.  The only level at which taxation should take place is the personal level.  Business owners who take draws from their businesses should pay tax on those draws.  Employees who work for corporations should pay taxes on their salaries and wages.  Business profits create the source of wealth that pays the personal incomes of everyone in the world, including all government employees and career politicians, and they should never be taxed. 
In one of the most unfair parts of the SDA tax code, companies are taxed on the money they distribute to their shareholders in the forms of dividends.  That is right, dividends are not tax deductible to the company that pays them. The net impact is that dividends are taxed twice, first at the corporate level via the corporate profits tax and second at the individual level as a dividend distribution to an individual taxpayer.  Double taxation is always immoral and constitutes an act of theft.
As I posted to this blog earlier, businesses are patsies in this immoral country.  They are required to pay for everything that exists in this God-hating land.  They have to pay for their employees health insurance, their female employees abortions, their child-bearing employees time off when junior gets the sniffles and, now, for 11% of the federal budget. Will hatred for the profit seeking corporation ever end?  I doubt it.

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