March 24, 2008 - Phil Hodgen

News flash! US corporate taxes are really high

We do international tax planning for US businesses. They do business outside the United States and need to make sure they don’t pay tax in two (or more) places at once on the same dollar of profit.

Among other things, we try to defer the day of reckoning. If you can pay your tax in 5 years from now, that’s good. That’s called deferral. Eliminating US tax may be a pipedream but deferral can (and does) work.

People who run businesses are at least as smart as J. Wellington Wimpy. It’s all about present value. Pay the tax later. Get the revenue now.

It turns out (shocking, I know) that the tax burden in the United States is high, especially when you combine State corporate income taxes with Federal corporate income taxes. So it isn’t surprising that you’d see businesses trying to alleviate the burden.

Here’s the Tax Foundation’s summary of their findings.

I know it’s popular to bag on the French, but take note that a corporation based in any one of the 50 states will face a higher income tax rate than a French corporation. (Yes, I know there are 10,000 other government-imposed reasons that a French corporation might be uncompetitive, but let’s stick with income tax for the moment).

Tax is only one reason why a US business might be a non-competitive with a business based in another country. I personally have seen non-U.S. real estate development capital flee from California for non-tax reasons. Too bad for the economic development of the Golden State, but then our State politicians wouldn’t have the brains to buy a vowel if Pat Sajak loaned them a quarter. “But we’re California,” bleats Sacramento. “Everyone wants to be in California. We’re the center of the universe.” Survey says? *BZZZZZT*

But I digress. One thing at a time. US business taxation is insane and puts US multinational businesses at a disadvantage. Now we have some statistics. Things won’t change. (Insert zen-like acceptance here).

Memo to politicians

Consider Ireland. That is all. Write a 1-page book report and be back in a week.

Memo to US businesses.

If you feel like a racehorse carrying an overweight jockey, you’re right. Move as much of your operations offshore as you can. (That’s my job).

Memo to voters

Why should you care? “Meh, it’s all those Bloated Plutocrats lighting their cigars with $100 bills. Think of the children! Corporations should pay their fair share!”

Suggestion: take a basic Economics course at your local community college (as long as you can avoid the unreconstructed Marxists). Or just look at reality with a nonjudgmental and unbiased eye. Here’s the clue to cause and effect: high taxes mean businesses will flee and your jobs will go with them. As businesses flee, tax revenues will drop. What will you do then?

The mills of the Gods, etc. Srsly. Kthxbai.

Hat tip: TaxProf Blog.

Foreign Business Activities in the USA Tax and Trusts