Getting Into Line

by Dave Schuler on July 24, 2014

In considering how to end “inversion”, the decision by corporations to change their national headquarters for tax reasons, Rober Samuelson proposes:

Let’s lower taxes on corporations that can move from the United States; let’s raise taxes on the people who own their stock. Although the odds against this bargain are long, it would be a true act of economic patriotism.

a solution obvious to anyone who’s ever taken an economics class. The key problem here is one I fear that Congress either does not understand or doesn’t care about: our corporate tax laws are wildly divergent from those of other major economies. It is now a globalized world in which most factors of production are portable. We need to get used to it.

{ 5 comments… read them below or add one }

TastyBits July 24, 2014 at 10:00 am

I suspect that the problem is how corporations are treated legally. The easy solution would to treat all business done out of the country as a separate company. They would get the benefits of that country but none of the US.

Dave Schuler July 24, 2014 at 11:34 am

The big problem is that we’re the only major developed economy that treats overseas earnings and domestic earnings the same. That is, as soon as a company repatriates its overseas earning they become taxable here.

TastyBits July 24, 2014 at 12:23 pm

I have a problem with the concept of multi-national corporations. In my opinion, they have too much influence, and I believe it is just a way for them to shirk their responsibilities.

In my world, there would be no overseas earnings to be taxed, but those transactions would receive no benefits from the US. Pay Chinese taxes, and if you have a problem, take it up with the Chinese. Any transactions made in the US cannot be foisted off onto the Chinese.

Dave Schuler July 24, 2014 at 1:49 pm

Pay Chinese taxes, and if you have a problem, take it up with the Chinese

That’s precisely how we’re out of step with other countries. If U. S. company A has German earnings, they pay German taxes. If they have French earnings, they pay French taxes.

However, if they bring their net earnings back from Germany or France to the U. S., they also pay U. S. taxes. If a German company has U. S. earnings, they pay U. S. taxes but when they repatriate their net, they pay no tax on them.

TastyBits July 24, 2014 at 3:30 pm

In my scenario, there are no foreign earnings. Company A is either a US company or not. Having the same name would not make a difference. It would make no sense for IBM to repatriate Toyota earnings, and it would be the same for IBM USA and IBM Japan earnings.

If you want free trade between country A and country B, you need common laws, common currency, common legal system, and a common enforcement mechanism.

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