Corporate Deserters
President Obama was beating the drums on Thursday in Los Angeles regarding corporate
tax deserters, companies that move headquarters or tax shields to another
country in order to escape high US tax rates.
The LA Times provides the details in President Obama Hits 'Corporate Deserters'
in Populist L.A. Speech.
Tearing into companies he dubbed
“corporate deserters,” President Obama on Thursday launched an election-year
push to make it harder for U.S. companies to avoid paying taxes.
Under a bright sun at a trade and technical college in Los Angeles, Obama
issued a damning assessment of a “small but growing” group of companies
taking advantage of a “loophole” in corporate tax law by reorganizing
overseas, often in low-tax countries.
Obama accused the companies of “renouncing their U.S. citizenship” and
“fleeing the country” while sticking U.S. taxpayers “with the tab.”
“You shouldn’t get to call yourself an American company only when you want a
handout from the American taxpayer,” Obama told a crowd gathered at the Los
Angeles Trade-Technical College. The speech capped a three-day West Coast
trip primarily focused on raising money for Democrats ahead of the midterm
elections.
Obama’s target on Thursday was so-called inversion transactions, a practice
that allows U.S. companies to reincorporate overseas, either through a merger
or purchase of a foreign entity, and thus avoid paying U.S. taxes on its
foreign earnings.
Who Cares About Legalities?
The president acknowledged the practice is legal, but added “my attitude
is, ‘I don’t care if it’s legal -- it’s wrong.’”
Well, who gives a damn about legalities anymore? Certainly not president
Obama, as he has proven many times over.
Besides, as we all learned from President Nixon "When the president does it, it's not illegal".
No president has been a finer student of Nixon philosophy than Obama.
People Freaking Out
Business Insider's "eye-popping" chart of the day on Why People Are Freaking Out About 'Tax
Inversions' adds a big megaphone to Obama's tune.
'Factoryless' Exports
In addition to seeking higher taxes, Obama simultaneously proposes a rule
change to classify "factoryless goods producers" as domestic
manufacturers, even if the manufacturing jobs associated with those producers
are offshore.
The IB Times reports Obama's jobs proposal was Slammed by Unions.
A decade ago, as the United States
hemorrhaged manufacturing jobs, the federal government considered
reclassifying fast food as a manufacturing industry. Sound ludicrous? Today,
with the manufacturing sector still ailing, the federal government wants to
take something called "factoryless goods" and categorize the firms
that make them as manufacturers. As part of the plan, the government could
also classify some foreign-manufactured goods as U.S. exports.
Now, as the White House seeks to portray its domestic manufacturing
initiatives as successful, the administration has proposed a rule change to
classify "factoryless goods producers" as domestic manufacturers,
even if the manufacturing jobs associated with those producers are offshore.
A 2013 Study by Dartmouth Business School researchers found that had that rule been in place, it would have
officially increased U.S. manufacturing employment figures by 595,000 jobs in
2002 and 431,000 jobs in 2007.
In response, labor unions and consumer groups this week announced they
organized more than 26,000 public comments against the proposed
change. They charge that the reclassification
could undermine the Buy America Act, which requires government purchasers to
give preference to U.S.-made goods. They also argue that such a
reclassification would artificially and inaccurately inflate the number of
domestic manufacturing jobs reported by the government and would hide the
true economic cost of trade proposals, such as the pending Trans Pacific
Partnership.
Though the proposed change could be politically useful for lawmakers and is a
hot issue for labor advocates, some economists support the initiative on the
grounds that it provides more precise data. As the Dartmouth researchers
argue, such reclassification may be necessary because "factoryless
goods" are "a new type of production function in the global
economy."
Ultimate in "Factoryless
Goods"
Do US dollars qualify as "factoryless" goods? If not, why not?
Dollars can be manufactured at will, electronically, without a factory, and
China gladly takes all of them we print.
China wants dollars and we want junk. That should make everyone happy.
The only problem is classification. All Obama has to do is count US dollars
as a "new type of production" and the trade deficit
magically goes away.
On a more serious note ...
I propose elimination of corporate income taxes entirely.
I recently discussed a zero percent corporate tax rate in response to a
proposal by Barry Ritholtz regarding a "Fair Tax"
structure.
For a detailed discussion, please see Reader Emails and Other Reflections On the
"U.S. Corporate Tax Dodge".
The article covers numerous points. For those who want a quick synopsis, here
goes:
"Ritholtz wants uniformity and fairness. I agree. Taxation at 0%
would not only provide it, businesses would come to the US, instead of escape
from the US. How bad would that be?"
To address the trade deficit completely and easily, also see Hugo Salinas Price and Michael Pettis on the
Trade Imbalance Dilemma; Gold's Honest Discipline Revisited
Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
