Saturday, August 30, 2014

Corporate Tax Inversions and Consumer Behavior

Jonathan asked me if I support "Corporate Tax Inversions" over at this MinnPost article.  The following discussion ensued.

"Post Idea: 
I will need to think more about it. My initial questions are:
  • Are people who buy Hyundai's unpatriotic and selfish since they spend their money outside the country?
  • Are people who shop online to escape MN sales tax unpatriotic and selfish?
  • Are people who open enroll or move to a "better" school district not community minded and selfish because they desert their old community that could really use their help?
  • Can companies be sued by stockholders for spending more money than they have to?
  • Why aren't America's business taxes competitive with Canada, Ireland, Scotland, etc? They aren't moving to Somalia..." G2A
 "Here is my opinion:
  • my Honda was made in the US and my Suburban in Canada -it's a bit more complicated than it seems
  • I shop on line not to escape taxes but because there is a larger selection of what I am looking for and I hate shopping. Although I do have to say many of my ABE book purchases were published in England originally
  • no they aren't because they are just choosing how to invest in human capital
  • boy I wish they could
  • I have no clue but I will look" Jody
"More than Assembly:
 
  • Cars have many aspects to "American Content" and some Honda models are very high in domestic content. http://kogodnow.com/autoindex/
  • You are like me, however many folks go to Best Buy to test drive the product. And then they go on line to get a better deal and avoid state taxes. What do you think of that behavior? I figure if I am in a MN store using their inventory and personnel, I will happily pay a bit more.
  • My daughters attend Robbinsdale schools which are good but a bit rough at times. Many people move to or open enroll in Wayzara, Orono, Osseo(Maple Grove side), Privates, etc. The fact is that every "active academically focused well to do family" that leaves the community means fewer volunteers, fewer role good role model students, fewer funds, less money, etc. They are doing what they doing what they think is best for their child, but they are deserting a community where their presence was beneficial. When one family runs it isn't a problem, when thousands of families run it is a big problem.
  • I hope not, every company would need to move as necessary to maximize profits. Or face law suits. Us investors like it when companies make profits and increase our retirement funds.
  • I think you will find that these countries understand that attracting growing companies creates jobs.. And lower business taxes attract companies. And those employed citizens then pay more in taxes than what was lost." G2A
 "I presume the answer is a 'yes' then? None of the questions you asked were about Corporate Tax Inversion strategies, but they seemed to be attempting to be leading towards a "well, if liberals who buy hyundais can send their money oversees, so can corporations" argument." Jonathan
 
"My answer is Maybe:
 
What are your thoughts?  Do you think poor and middle class citizens can act in their personal self interest and it is okay, however when companies or well to do people do it is betraying their community and country?" G2A
Now if you are unsure what a corporate inversion is, here are some links.
Forbes Medtronic Inversion
NYT Dealbook Taxes Due
CA Corp Inversions
Bloomberg: US Tax Holiday
CBPP Tax Holiday
WP Burger King
Heritage Repatriating Funds (Tax Holiday)
Telegraph Taxes too high
Forbes Are Taxes too High
Bloomberg Canadian Taxes

I think I'll need your help to push me off center on this one.  If the US business taxes are not competitive, my stockholder /"competition is good" side says get moving.  Yet the side of me that makes me fight for my school district and buy high content American products when possible finds the behavior disturbing.

Thoughts?


39 comments:

Sean said...

The biggest issue with U.S. taxes isn't the statutory rate, but rather the fact that we don't have a territorial system. The effective corporate income tax rate is about 13% in the U.S., and current collections as a % of GDP are currently lower that the post-WW2 average, despite corporate profits being at all-time highs.

Anonymous said...

We simply shouldn't assess tax liability based on where CEO's pretend to get their snail mail.

--Hiram

John said...

Apparently the actual taxes paid are still too high compared to other countries or companies would not do this.

Hiram,
How should be determined? Should US taxes even be charged on profits that occur in other countries?

Anonymous said...

Other countries are simply corporate tax doges in political form. Medtronic, for example, explained very carefully to us all, that they wouldn't actually be moving their business to Ireland. The US is, after all, a much better place to do business than tiny Ireland. They were just moving their corporate PO Box there. The markets found that very reassuring.

What's the alternative? That's a very complicated question and also one that is moot since politically powerful corporations very much like a status quo which allows them to save millions in taxes by renting a PO Box in Dublin.

--Hiram

John said...

I wonder if at some point they will move more operations overseas. I mean they can sell their product here no matter where they do the work. And since Americans are happy to buy high foreign contact product...

Neither of you seem willing to address the hypocrisy of American consumers crying foul from the seat of their Hyundai, Lexus, Scion, BMW, VW, Audi,Subaru, Kia, Mercedes, Porsche, Volvo, Land Rover, Jaguar, Toyota, Honda, etc.

Or to blog their indignation from their Samsung, Lenovo, LG, Sony, Toshiba, HTC, Nokia, etc device...

It seems many citizens are happy to take advantage of what other countries offer, yet they are willing to attack others for doing the same.

Thoughts?

Anonymous said...

I wonder if at some point they will move more operations overseas

I don't expect my local Burger King will be shipped to Toronto. I don't expect Medtronic to trade it's American market for the Irish market. Post Office boxes are moving overseas but corporations are not, and our tax law needs to reflect that.

I am perfectly ok with Ireland assessing property taxes on the PO Box Medtronic has recently rented in Dublin, and the deduction of such costs on their American taxes. After all, I am sure it won't be very large.

--Hiram

Anonymous said...

Neither of you seem willing to address the hypocrisy of American consumers crying foul from the seat of their Hyundai, Lexus, Scion, BMW, VW, Audi,Subaru, Kia, Mercedes, Porsche, Volvo, Land Rover, Jaguar, Toyota, Honda, etc.

Is hypocrisy taxable?

--Hiram

John said...

Somewhat.

Imagine all the income of all those employees at Hyundai, Lexus, Scion, BMW, VW, Audi,Subaru, Kia, Mercedes, Porsche, Volvo, Land Rover, Jaguar, Toyota, Honda, etc that could be taxed. Not to mention the 100,000's of jobs for Americans.

Maybe we would not need so much in taxes.

Look at how much money we have sent to them instead of to ourselves. Trade Balance

Anonymous said...

magine all the income of all those employees at Hyundai, Lexus, Scion, BMW, VW, Audi,Subaru, Kia, Mercedes, Porsche, Volvo, Land Rover, Jaguar, Toyota, Honda, etc that could be taxed. Not to mention the 100,000's of jobs for Americans.

Are they paid for their hypocrisy? Or their labor?

--Hiram

John said...

The pro-union, anti-inversion, pro-American worker, anti-free trade, pro-minimum wage, anti-right to work state, etc people are those who get paid for their hypocracy when they buy those high foreign content products or services.

They received some extra perceived personal value, maybe some cost reduction, etc in exchange for choosing to not put their money where their mouth is.

Honda and Toyota have some of the highest domestic product, yet they placed their plants where the Unions were weaker.

John said...

By the way, the foreign workers, managers, governments and social programs are paid for by these low American content shoppers. I think they appreciate the hypocracy of some of our consumers.

Anonymous said...

The pro-union, anti-inversion, pro-American worker, anti-free trade, pro-minimum wage, anti-right to work state, etc people are those who get paid for their hypocracy when they buy those high foreign content products or services.

Is a Medtronic employee who doesn't quit his job when his company move to Ireland some sort of vile hypocrites? Is the heart patient who tells his doctor not to use a Medtronic stent a vile hypocrite too? Those thoughts wouldn't occur to me. Not everyone has to take politicize every decision in their lives. If we define hypocrisy that broadly, pretty much everything we do in life is hypocritical one way or another. Are people who favor harsh immigration laws being hypocritical when they choose a Whopper?

--Hiram

John said...

So from your view it is okay for:

People to rant about others destroying the power of Unions in the USA as they buy non-Union made products to save some money personally...

People to vent about jobs going overseas as they are buying product that is made over seas to save some money personally...

People to moan about the plight of diverse schools as they move out of them, to escape the issues.

People to villify organizations for seeking to reduce their tax bill as they shop online to reduce their own.

I accept that it is the reality of us humans, I just think it is interesting. And wonder if they can see themselves in the mirror clearly enough to realize what they are doing.

Anonymous said...

Oh sure. I don't have very much of a problem with hypocrisy or inconsistency. I don't think employees who have a problem with Medtronics tax evasion strategy should quit their jobs. If the need should arise, I won't be telling my doctor to make his choices about the medical equipment to use, based on country of origin. I don't think people make choices based on the desirability of avoiding the appearance of hypocrisy, nor do I think they should. A friend of mine devoted his whole life to maintaining consistency in all things, and he literally, could barely get out of bed in the morning. It really became an issue for him.

--Hiram

Anonymous said...

Let's just say I could stand to lose a few pounds. The doctor who tells me that, is also a bit overweight. Is my doctor a hypocrite for giving me advice he has trouble taking himself? If so, does his hypocrisy make the advice he gives any less valid? In an effort to avoid hypocrisy, should my doctor refrain from giving me what is in his judgment, sound medical advice?

--Hiram

John said...

Technically it is not Tax Evasion, it is Tax Avoidance.

The question is would your Doctor judge you as fat, lazy, etc as he was giving you the "eat healthy" advice? Would he demand that you behave differently than himself?

The hard core Liberal commenters at MinnPost seem to have no problem judging others and demanding that they behave differently than themselves. Though it seems some of them practice what they preach.

John said...

Just curious, did you use "Evasion" on purpose to show your negative judgment of Medtronics actions?

Because I know you are smart enough to know the difference between evasion and avoidance...

Anonymous said...

The question is would your Doctor judge you as fat, lazy, etc as he was giving you the "eat healthy" advice?

I don't know. You would have to ask him. He certainly didn't say that to me.

The hard core Liberal commenters at MinnPost seem to have no problem judging others and demanding that they behave differently than themselves.

My doctor, also, seems confident in his medical advice.

--Hiram

Sean said...

"I hope not, every company would need to move as necessary to maximize profits. Or face law suits. Us investors like it when companies make profits and increase our retirement funds."

How far does "maximizing profit" go? If a company can engage in unethical, but not illegal behavior to do maximize profit, should it?

For instance, a few years back in California, AT&T gave customers a "free" cell phone, then hit them with a $30 bill for it and then when folks complained about it, they enforced requirements that you go through arbitration to get the $30 back. Naturally, most folks declined the hassle of arbitration, so AT&T walked away with a free $30 from most customers who took that "deal".

John said...

Both my current and previous employer beat business ethics into us relentlessly. Things like that ATT stunt usually lose a company far more money in good will than the $30 per line.

Anonymous said...

By the way, there is nothing wrong with foreign corporations doing business in America. They just shouldn't be afforded more favorable tax treatment as compared to American companies. As an Irish company, Medtronic, should at the very least, pay the same taxes as an American company.

--Hiram

John said...

Good Point.
So should BMW, VW, Subaru, Hyundai, etc, etc, etc....

How exactly should that happen?

What would you do with these global companies? Have them each pay significant taxes in each country that they operate?

Or should they just be taxed on the profits made in each country? Paid to that country...

Then we wouldn't need a tax holiday for them to bring the profits home to the USA?

I assume today the USA requires that the money is taxed twice. Once by the local country and secondly by the USA.

Anonymous said...

So should BMW, VW, Subaru, Hyundai, etc, etc, etc....

How exactly should that happen?

Of course they should. Foreign companies already have huge advantages over their American competitors. We shouldn't add to that by giving them favorable tax treatment as well. As to how that's to be done, I leave that to the policy wonks. But generally, it simply makes no sense for an Irish company like Medtronic, to have a competitive tax advantage over an American company.

--Hiram

Sean said...

"I assume today the USA requires that the money is taxed twice. Once by the local country and secondly by the USA."

Yes, but the U.S. gives you a tax credit for any tax you've paid overseas.

Perhaps the thing to do would be to remove the corporate income tax altogether in exchange for treating capital gains and dividends the same as wage income for tax purposes.

John said...

Ironically, I am looking to buy a Ford Escape which has less domestic content than the Honda CRV according to KOGOD. Mostly due to the engine having 14 pts vs the transmission only having 6 pts. The 2.0 L Eco-boost is apparently built in Spain of all places... "It's a Small World After All"

Ford Eco-Boost
Ford Louisville

John said...

An interesting take.

Street: Another Tax Holiday

Sean said...

Another "holiday" is a terrible idea.

First, the last holiday didn't work. The 15 companies that repatriated the most money during the 2004 holiday actually cut employment from 2004-2007 and cut spending on research and development.

http://online.wsj.com/news/articles/SB10001424052970203633104576623771022129888

Second, I don't know why you would be advocating a tax holiday. You have claimed the economy is past needing such stimulation.

Third, the stock market -- which is hovering at or near all-time highs -- doesn't need to have the bubble blown up by such artificial measures.

Fourth, if we're going to reform corporate taxes we should do so in a way that helps domestic-only businesses as well.

John said...

I am not sure I have "advocated" it.

However something needs to change if we want American companies to stay here and dominate their foreign competitors.

Sean said...

"However something needs to change if we want American companies to stay here and dominate their foreign competitors."

Swell. Do you have any ideas other than scolding people about their buying behaviors?

John said...

Swell. Do you have any ideas other than scolding people about their business management and investment behaviors?

Sean said...

I made a concrete suggestion yesterday.

John said...

"Perhaps the thing to do would be to remove the corporate income tax altogether in exchange for treating capital gains and dividends the same as wage income for tax purposes."

Sorry I didn't know if you were serious with this or joking.

It seems this would make some sense, however I am concerned there may be some potential negative consequences. (ie where will people choose to invest there money?)

I think this idea requires a post of it's own, however here are some links.
Tax Foundation Why Capital Gains are Lower
Forbes Equalize Most Capital Gains
Forbes Is it time to repeal corp income tax

Sean said...

History shows that the capital gains tax doesn't really impact behavior all that much.

The Tax Foundation claim that capital gains taxes surged up after the rate cut in 2003 is true, but it ignores the fact that late 2002-early 2003 was the nadir of the technology bubble and 9/11 stock market decline, and that there were a lot more capital gains to be realized in 2007 when the stock market had gone through a four-year period of growth and nearly doubled in value.

Eliminating the corporate income tax also undercuts much of the rationale for special treatment of investment income, I would also argue.

Not to mention the fairness issue of treating some types of income differently from others -- an issue recognized by noted Communist Ronald Reagan, when he signed the 1986 tax reform that equalized those rates.

John said...

Source?

"History shows that the capital gains tax doesn't really impact behavior all that much. "

Also, please remember that history is a bit sketchy.

Pre-1985: USA companies were the big dogs.

Post-1985: Consumers rewarded the good choices and low costs of foreign firms.

Post-1995: Investing globally got real simple.

John said...

Off topic...

The G2A family now owns it's first ever Ford product... God help us...

Generic Ford Escape Titanium Pic

The decision came down to towing capacity... This 4WD with a little 2.0 L turbo engine is supposed to get 28 mpg highway... And if needed can tow up to 3,500 Lbs.

Sean said...

http://thinkprogress.org/economy/2012/11/29/1252751/no-low-capital-gains-taxes-dont-boost-the-economy/

John said...

Interesting though I am not sure you could have picked a more Left centered source. (ie Think Progress and CBPP)

Think Progress No Low Capital Gains Don't Boost the Economy

By the way, I don't think they will put it in their mattress. I think they may put more of it in other countries.

Sean said...

The sources of their data are extensively footnoted. Or are just dismissing it based on it being CBPP?

I should note that the article also cites non-partisan sources as well.

John said...

I guess I had no intention of dismissing it, however it was worth noting. With all theories and opinions, I try to take into account the perspective / bias of the writer.

If I link to a Heritage article with sources, usually someone notes their bias.