25 Jan 2013
In my opinion that answer is very simple – NO, but of course my opinion is one of many on this hotly contested topic. If you aren’t familiar with the issue at hand, allow me to give a brief explanation. US companies such as Apple and Microsoft earn billions of dollars each quarter. Through complex, but legal accounting, they earn those profits in foreign-owned companies that are based in tax jurisdictions with much lower corporate tax rates.
Liberals are incensed be these corporates and want to ‘close’ the loop holes that allow them to profit without paying tax. The problem with the liberal agenda on this issue is that what they want to accomplish (1) is impossible and (2) make terrible business sense. The reason that it is impossible to prevent corporations from earning money offshore is because the world is full of international commerce. We want, dare I say outright depend on foreign trade in order to function as our country. We import more than we produce. If we made every corporation that did business within the US pay taxes on their business activities that take place abroad, companies would either stop doing business in the US or they would jack prices through the ceiling to offset the cost of doing business in the US. Companies like Apple and Microsoft have incorporate legitimate entities in countries outside of the US, through which they run their generate revenue. They sole reason that they don’t simply move the companies back to US soil is because the US has the second highest corporate tax rate in the developed world (we are behind Japan and they haven’t been doing well economically for 20+ years).
The trick that these companies use to get the foreign money back into the US for R&D and other operating activities is to deposit the money in an account that US banks will lend against. Essentially, a US bank underwrites a loan for $1B to Apple for a very low interest rate, and Apple allows the bank to collateralize a foreign cash account with an equal amount of money in it. Banks love the process because they make money from lending $1, which is backed by $1. Foreign entities love it because it allows them to use the cash that they received from the loan (borrowed money isn’t taxed) without being taxed.
At some point, our country has to become more competitive and recognize that we are punishing our job creators by fostering a business environment with incessant regulation and extremely high taxation. I believe that we will wake up eventually to this reality, I just pray that this awakening occurs during my lifetime.