“I think that it would be surprising to find Microsoft or whoever looking to relocate their headquarters out of the United States”

Posted by Marc Hodak on May 6, 2009 under Collectivist instinct, Invisible trade-offs | 4 Comments to Read

That quote is in reference to Obama’s proposal to enhance the U.S.’s global taxing power over corporations incorporated here.

Here’s how it works now.  P&G and Unilever can set up a soap plant in Ireland and sell soap in India.  Unilever pays the Irish tax rate of 12.5% on its profits.  P&G pays the same, but retains an additional 22.5% tax liability with the United States.  P&G will have to cough up that cash as soon as it brings it back to the U.S.  Lo and behold, they see an opportunity to build a warehouse in Ukraine, or a call center in Bangalore.  They use their foreign profits to do this, paying a net tax that is exactly the same as Unilever’s for all these activities.

Obama says he wants that tax money now.  As soon as P&G makes it.  On money that never reaches the U.S.   In Obama’s rose world, P&G is “shirking its responsibility” to the American people by shielding their profits from among the highest corporate taxes on Earth.  Obama’s does not consider that the American government is shirking its responsibility to American companies by charging them among the highest rates on
Earth for the use of the house brand.

There’s actually a funny part to this story:  Obama believes that this change in policy will encourage more jobs in the U.S.  That’s right, by taking more of P&G’s foreign profits away from them, they will build that warehouse in Utah or that call center in Buffalo.

Only the U.S. has the arrogance to levy taxes on a global basis.  This arrogance is born of the liberal hubris that these companies have nowhere else to go (“they wouldn’t dare reincorporate in Bermuda”), or that contemplating it constitutes a sort of treason.  It is born of the conviction that a extra few billion in the hands of Congress is better for Americans than having it in the hands of American companies.  They really believe that.

The really funny thing is that Obama believes the people telling him that he will actually see all those taxes rolling in.  If history is any guide, some of those companies will, in fact, reincorporate in Bermuda, or Ireland, or Holland.  It doesn’t cost much for even a fairly large, global company, certainly less than 20+ percent of their foreign profits per year.  The ones that don’t re-incorporate outside of the U.S. will, instead, spin off their international divisions to their shareholders.  Others will use any of dozens of other loopholes, presumably more expensive measures than they must use today, to keep from getting raped by Congress.  Under no circumstances do I believe that Unilever or Arcelor or Nestle or any of the other challengers to our major businesses will reincorporate in Delaware and move their headquarters to New York.  The few businesses that suck it up for whatever reason will simply have to adapt to becoming uncompetitive in a hungry world, resulting in less profits here to tax.

And we will not see a significant increase in tax revenue from our multinationals.