On July 29, 2014, Scott Baker writes on Op-Ed News.
Robert Reich published the following article in today’s Huffington Post.
Before I get into what I think is good and bad, I’d like to show the whole article, which is fairly short:
“You shouldn’t get to call yourself an American company only when you want a handout from the American taxpayers,” President Obama said Thursday.
He was referring to American corporations now busily acquiring foreign companies in order to become non-American, thereby reducing their U.S. tax bill.
But the president might as well have been talking about all large American multinationals.
Only about a fifth of IBM’s worldwide employees are American, for example, and only 40percent of GE’s. Most of Caterpillar’s recent hires and investments have been made outside the U.S.
In fact, since 2000, almost every big American multinational corporation has created more jobs outside the United States than inside. If you add in their foreign sub-contractors, the foreign total is even higher.
At the same time, though, many foreign-based companies have been creating jobs in the United States. They now employ around 6 million Americans, and account for almost 20 percent of U.S. exports. Even a household brand like Anheuser-Busch, the nation’s best-selling beer maker, employing thousands of Americans, is foreign (part of Belgian-based beer giant InBev).
Meanwhile, foreign investors are buying an increasing number of shares in American corporations, and American investors are buying up foreign stocks.
Who’s us? Who’s them?
Increasingly, corporate nationality is whatever a corporation decides it is.
So instead of worrying about who’s American and who’s not, here’s a better idea: Create incentives for any global company to do what we’d like it to do in the United States.
For example, “American” corporations get generous tax credits and subsidies for research and development, courtesy of American taxpayers.
But in reducing these corporations’ costs of R&D in the United States, those tax credits and subsidies can end up providing extra money for them to do more R&D abroad.
3M is building research centers overseas at a faster clip than it’s expanding them in America. Its CEO explained this was “in preparation for a world where the West is no longer the dominant manufacturing power.”
3M is hardly alone. Since the early 2000s, most of the growth in the number of R&D workers employed by U.S.-based multinational companies have been in their foreign operations, according to the National Science Board, the policy-making arm of the National Science Foundation.
It would make more sense to limit R&D tax credits and subsidies to additional R&D done in the U.S. over and above current levels — and give them to any global corporation increasing its R&D in America, regardless of the company’s nationality.
Or consider Ex-Im Bank subsidies — a topic of hot debate in Washington these days. These subsidies are intended to boost exports of American corporations from the United States.
Tea Party Republicans call them “corporate welfare,” and Chamber-of-Commerce Republicans call them sensible investments. But regardless, they’re going to “American” multinationals that are making things all over the world.
That means any subsidy that boosts their export earnings in the United States indirectly subsidizes their investments abroad — including, very possibly, their exports from foreign nations.
GE, a major Ex-Im Bank beneficiary, has been teaming up with China to produce a new jetliner there that will compete with Boeing for global business. (Boeing, not incidentally, is another Ex-Im beneficiary). In fact, GE is giving its Chinese partner the same leading-edge avionics technologies operating Boeing’s 787 Dreamliner.
Caterpillar, another Ex-Im Bank beneficiary, is providing engine funnels and hydraulics toChinese firms that eventually will be exporting large moving equipment from China. Presumably they’ll be competing in global markets with Caterpillar itself.
Rather than subsidize “American” exporters, it makes more sense to subsidize any global company — to the extent it’s adding to its exports from the United States.
Which brings us back to American companies that are morphing into foreign companies in order to lower their U.S. tax bill.
“I don’t care if it’s legal,” said the president. “It’s wrong.”
It’s just as wrong for American corporations to hide their profits abroad — which many are doing simply by setting up foreign subsidiaries in low-tax jurisdictions, and then making it seem as if the foreign subsidiary is earning the money.
Caterpillar, for example, saved $2.4 billion between 2000 and 2012 by funneling its global parts business through a Swiss subsidiary (a ruse so audacious that one of its tax consultants warned Caterpillar executives to “get ready to do some dancing” when called before Congress to justify it).
And what about American corporations that avoid U.S. taxes by never bringing home what they legitimately earn abroad — a sum now estimated to be in the order of $1.6 trillion?
Rather than focus on the newly-fashionable tax-avoidance strategy of changing corporate nationality, it makes more sense to tax any global corporation on all income earned in the United States (with high penalties for shifting that income abroad), and no longer tax “American” corporations on revenues earned outside America. Most other nations already follow this principle.
In other words, let’s stop worrying about whether big global corporations are “American.” We can’t win that game. Focus instead on what we want global corporations of whatever nationality to do in America, and on how we can get them to do it.
I congratulate Reich for thinking outside the “American Company vs. Foreign Company” box. He’s absolutely right in that national incorporation means very little in today’s globalized world, and will mean even less in the future. Some commentators have said even nation-states are fading in importance as well, but I believe the case for that is not nearly as strong; for one thing, we are seeing a proliferation of nations (currently 193), over a double since WWII, not a reduction. Despite Obama’s contradictory impulse to “level the playing field” to the lowest common denominator through the TPP and TTIP agreements, there are still many reasons to retain the nation-state, monetary sovereignty among the highest, but also worker rights, good middle class jobs, environmental protections etc.
It’s clear that these features do not exist to the same degree in countries that are taking our jobs and are asking corporations to pay so little in taxes that the inversion Reich speaks of, has become a major corporate trend.However, tax subsidies are expensive and, as Reich points out, can be gamed into being applied abroad instead. Who is going to monitor this, and how? This will add another layer of bureaucracy to an over-burdened, under-funded government tax department.
The Export-Import bank should probably stay, for now, since getting rid of it would only put us at a disadvantage to other countries who have departments to do the same thing, but this is, at best, and almost by definition, a holding action, not one that can give any country a permanent advantage. Indeed, for all the subsidies Boeing is getting this way, it looks as though GE will undercut it, and maybe even itself, by helping China to create a competitive airplane industry, says Reich, and others.But, there is another way to get the revenues government needs to function, and to make sure businesses in this country pay their fair share.
First, let’s review the Cannons of Taxation, going back to Adam Smith. The canons or principles of taxation are:
1. Economic (cost effective, meaning it should cost less to collect the taxes than the tax revenue)
2. Equity (fair taxation in terms of horizontal and vertical equity)
3. Certainty (people should know how and when to pay)
4. Convenience (simplicity or ease)
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*Canon of certainty says that tax policies should not alter regularly and there are some more canons. Such as,
5. Canon of Neutrality (tax policy should not make abnormality in Market)
6. Canon of Incentives (a tax should not harm the factors which motivate economical sectors)Our current tax system is largely none of these to any great degree. It is enormously complex, expensive to administer and to comply with, counter-productive, inconvenient, and non-neutral.
A much better system would tax those things that cannot be moved offshore, like Land (including location), pollution and resource use. It would also be more “fee-based” so that resource use/abuse would be fully charged for, especially externalities, which are barely taxed at all, relative to their harm.
Some examples of things that are under-taxed for their use now include:
A. Roads. Congress just barely prevented 700,000 jobs from being lost due to suspended highway and infrastructure projects, by funding a stopgap measure in the Highway bill just passed. However, the cost was in allowing corporations to under-fund pensions (yet another giveaway to corporations that will ultimately do nothing to stop their net exodus). The Senate has yet to pass it, however, and if, as expected, they tinker with it, it will have to return to the House, where it may face opposition from the anti-Obama Republicans. We have only until August to rectify this, and Congress will go on vacation around then too. Both sides agree that the gas tax is insufficient to meet the needs of our nation’s highways.
However, we could do something else. We could charge a tax by the mile instead of by the gallon (electric cars will also eventually put a dent in this revenue source). But, an even larger source of revenue would be to tax those locations that benefit from having a road run to or near them, through a Land Value Tax – basically collecting the rent on location.
A Land Value Tax would meet all the cannons of taxation, even number 6, since it is money that is now just going into private hands for doing nothing but being in the right place when a road goes through or is improved.
Corporations and people should pay for what they use.B. Ports. For those companies that do import goods, whether they are “American” or foreign, there ought to be a full charge for entering our country, including security checks, which are currently inadequate, says Representative Jerry Nadler and others. This will indeed add costs to importers of foreign made goods, but it is a price we are currently paying, either currently, or in possible future terrorist attacks that could have been prevented with proper screening. It is certainly a cost that ought to be borne by companies who import goods that could have been made here in America instead. Paying for corporate import “externalities” is not Free Trade, it is corporate socialism.
C. Virtual locations. Increasingly, business is conducted online, with the only physical location being a server farm in some distant area. Of course, we need to charge for the full cost of these highly energy-intensive farms, including pollution costs at the source, and water usage – a particular problem in the parched American West. But, we need to rethink how virtuallocational advantage benefits corporations too. Facebook, for example, has a good product that people want to use. But, how many people use it largely because other people arealready using it? With its rapid growth rate, it’s hard to pin down, but there are currently over a billion users. Surely, most of those people were strongly encouraged to sign up because so many others were already there.
If Facebook is profiting from the size of its virtual community, shouldn’t it pay rent just as it would have to in a physical community? Clearly, Facebook realizes it is in their interest not to charge users for using its product, but to pass those costs onto advertisers, but we ought to go further and charge rent on the commons, even if those commons are virtual. This goes for other social media giants and software producers, like Microsoft, who gain advantage because of the large community of users, even if they do nothing more to improve their product. As J.S. Mill said of actual Landlords, “They grow richer, as it were in their sleep, without working, risking, or economizing.”There are more things to collect the “rent” upon, and Georgist economists like Mason Gaffney, Nic Tideman etc. tell us the rent may be as high as 1/3 of the GDP, or even more, certainly, as Henry George said “Enough and to spare” to run a decent sized government.
At the same time, we ought to untax labor so they can more easily compete with workers abroad. Without the deadweight loss of taxes, workers can accept less money overall, while keeping more of what they earn. We ought to untax sales to encourage commerce, particularly local commerce – which would pay less for road use, ports, and other distribution costs that are hidden by road, rail, air, and freight subsidies now.
A broadened Land Value Tax to include virtual locations and externalities would acknowledge the value of the commons and that things “rented” from the commons ought to result in rent returned to the commons (i.e. the People) as a dividend.
It would be easy to comply with and without loopholes. It is not so much the rate that counts (ours is technically 35%, but corporations, through gimmicks like offshoring and inversion, often pay less than half that), but how hard it is to evade, and who is doing the evading (only Big Corporations who can afford to go through the steps to reincorporate elsewhere).
Until Obama mentions specifics like this, I can’t take him seriously. In fact, he may be deliberately or accidentally enabling this because he spouts useless nonsense about patriotism and fairness (neither of which are incentivized under corporate structures), while offering no real solutions, as if there aren’t any (see above). This just feeds despair and hopelessness, and leaves corporations free to continue doing what they are doing.
These proposals, while thought provoking, do not address the MOST significant problem facing Americans and other citizens of the world. That is the system in place assures that the wealthy ownership class will continue to concentrate ownership of wealth-creating, income-producing capital assets in perpetuity. None of the solutions proposed solve the problem of Monopoly Capitalism.
Capitalism, a term cleverly invented by Marxists and promoters of collective and State ownership, is a system that Ayn Rand and Milton Friedman also attempted to promote based on their glorification of “greed” and “selfishness” as moral virtues. The fact that the wealthiest 88 people in the world own more income-producing wealth than the bottom 350 billion members of world society does not trigger the moral sensitivities of these plutocrats. The top 1 percent of Americans own more productive wealth than the bottom 95 percent combined.
Both Robert Reich and Scott Baker appear to be either unaware or indifferent to the unjust exclusionary barriers in the world’s monetary, tax and other institutional barriers to enabling every human being to enjoy an equal opportunity (not necessarily equal results) to acquire personally or share with others private property rights in new capital formation and voluntary transfers of existing income-producing capital assets, without violating private property rights of existing owners over the capital assets they now own. There solutions are socialistic redistributive in scope, rather than empowering each citizen to contribute productivity and build personal financial security.
At the heart of the obstacle to broadened personal ownership of wealth-creating and income-producing capital assets are the state statutes that create corporations but fail to specify how they must operate. At present corporations are permitted to retain earnings and debt finance, neither of which creates any new owners. Thus, the rich continuously get richer. What the statutes should dictate is that any form of incorporated group association should be encouraged through taxation or effectively required to pay out fully the earnings of the corporation to their stock owners, who would be taxed at personal tax rates, thus eliminating the corporate tax and double taxation. To satisfy further growth of the corporation new shares of stock should be issue and sold to both employees of the corporation and to other citizens. Such new shares should be purchased using “pure credit,” such as insured capital credit loans repayable out of the FUTURE earnings of the investments. Thus, employees would not have to reduce their wage earnings or benefits and other citizens would not have to deny themselves consumption in order to pledge and risk their personal “savings” and “equities” to secure loans to invest.
This proposal is globally feasible because future increases in productive wealth are not dependent on existing wealth but have been historically increased by technological and system improvements and “customers with money” to buy the products and services produced by increased levels of production. To illustrate, America last experienced double digit rates of growth and full employment from 1940-1945, when the government supplied the money and customer power to encourage the private sector to grow faster to produce advanced weaponry needed to win World War II. Money and capital credit are “social tools” that can be used to finance equally fast rates of peacetime growth and broad-based citizen ownership and increased customer power. Newly added money and capital credit are based on promises that are expected to be repaid by future profits as projected by feasibility studies of projected sales and future costs of production that can only be realized in the future, not the past. In the world of commercial banking, capital credit for new capital formation is also backed by newly acquired productive assets, new rentable space and even improved infrastructure that sound feasibility studies have concluded will “pay for themselves” for new owners out of anticipated future profits.
Both newly added money in an economy and capital credit are expected to be backed by real assets, the very opposite of how the Federal Reserve now creates new inflationary money to cover mounting Federal debt and budget deficits of the Federal Government under Section 13(3) of the Federal Reserve Act. Compare that inherently inflationary monetary policy with the Federal Reserve’s unused potential power under Section 13(2) of the Federal Reserve Act to back commercial bank loans for supporting new capital credit for non-inflationary growth of any market economy.
“Pure credit” and capital credit insurance are the financial tools that can universalize access to asset-backed new money to be allocated to every citizen as the key for shifting economic power from government to all citizens by lifting artificial monetary and tax barriers to non-inflationary, balanced and faster rates of inclusionary market-based growth.
Americans must recognize the necessity to impose stipulations on corporations who benefit from government research and other contracts that they demonstrate that their ownership structure is inclusive of ALL employees and other citizens to qualify for consideration of the contract award. We need to condition awarding ALL taxpayer-supported federal contracts (corporate welfare) on the basis that EVERY company vying for a government contract demonstrate that they are broadly owned including ownership by their employees. We need to ensure that if a corporation wants the advantages of being an American company then they should not be able run away from America to avoid paying taxes. Either American corporations pay a stiff corporate tax and remain narrowly owned or they pay no corporate tax but are structured such that they are owned broadly and by their employees. Such policies will stimulate a new era in American technological innovation.
This is the pathway to creating new owners and broadening wealth-creating, income-producing capital ownership to EVERY child, woman and man. EVERY citizen should be empowered equally to have access to insured, interest-free capital credit loans issued by local banks backed by the Federal Reserve to acquire new stock issues in qualified corporations with the principal and insurance fee repayable out of the FUTURE earnings of the investment. This would provide American corporations with all the monies they would need to grow, which in turn would substantially accelerate the growth of the economy, create new capital owners who would benefit from a new income source, and create new job opportunities as the economy revs up to produce general affluence for EVERY citizen. These policies would create a nation of “customers with money,” who overtime can build substantial financial security and eliminate reliance on taxpayer-supported government.
If we further lower or eliminate corporate income tax rates we eliminate our ability to incentivize corporations to finance new growth by creating new owners, without taking away ownership from those who are already owners. We need to close ALL loopholes and subsidies, which would substantially eliminate tax deductions.
We need to define a foreign corporation with at least better than 50 percent ownership vested with foreign nationals and an American corporation with at least 50 percent American citizen ownership. This definition get to the heart of the ownership; it should not be about how many American or foreign workers employed. We also need to look at tariffs on non-American corporations who would have tax advantages over American corporations or who want to participate in the American economy but are narrowly owned.
The bottom line is we need open-minded people from across the political spectrum to wake up and organize to lift the barriers to a more just market system for every country.
Support the Capital Homestead Act at http://www.cesj.org/learn/capital-homesteading/capital-homestead-act-a-plan-for-getting-ownership-income-and-power-to-every-citizen/ and http://www.cesj.org/learn/capital-homesteading/capital-homestead-act-summary/.
Support the Unite America Party Platform, published by The Huffington Post at http://www.huffingtonpost.com/gary-reber/platform-of-the-unite-ame_b_5474077.html as well as Nation Of Change athttp://www.nationofchange.org/platform-unite-america-party-1402409962and OpEd News at http://www.opednews.com/articles/Platform-of-the-Unite-Amer-by-Gary-Reber-Party-Leadership_Party-Platforms-DNC_Party-Platforms-GOP-RNC_Party-Politics-Democratic-140630-60.html.
