Whether it’s American politicians trying to extort more taxes from Apple or international bureaucrats trying to boost the tax burden on firms with a global corporate tax return, the left is aggressively seeking to impose harsher fiscal burdens on the business community.
A good (or “bad” would a more appropriate word) example of this thinking can be found in the New York Times, where Steven Rattner just wrote a column complaining that companies are using mergers to redomicile in jurisdictions with better tax law.*
He thinks the right response is higher taxes on multinationals.
While a Senate report detailing Apple’s aggressive tax sheltering of billions of dollars of overseas income grabbed headlines this week, …the American drug maker Actavis announced that it would spend $5 billion to acquire Warner Chilcott, an Irish pharmaceuticals company less than half its size. Buried in the fifth paragraph of the release was the curious tidbit that the new company would be incorporated in Ireland, even though the far larger acquirer was based in Parsippany, N.J. The reason? By escaping American shores, Actavis expects to reduce its effective tax rate from about 28 percent to 17 percent, a potential savings of tens of millions of dollars per year for the company and a still larger hit to the United States Treasury. …Eaton Corporation, a diversified power management company based for nearly a century in Cleveland, also became an “Irish company” when it acquired Cooper Industries last year. …That’s just not fair at a time of soaring corporate profits and stagnant family incomes. …President Obama has made constructive proposals to reduce the incentive to move jobs overseas by imposing a minimum tax on foreign earnings and delaying certain tax deductions related to overseas investment.
But Mr. Rattner apparently is unaware that American firms that compete in other nations also pay taxes in other nations.
Too bad he didn’t bother with some basic research. He would have discovered some new Tax Foundation research by Kyle Pomerleau, which explains that these firms already are heavily taxed on their foreign-source income.
…the amount U.S. multinational firms pay in taxes on their foreign income has become a common topic for the press and among politicians. Some of the more sensational press stories and claims by politicians lead people to believe that U.S. companies pay little or nothing in taxes on their foreign earnings. Last year, even the president suggested the U.S. needs a “minimum tax” on corporate foreign earnings to prevent tax avoidance. Unfortunately, such claims are either based upon a misunderstanding of how U.S. international tax rules work or are simply careless portrayals of the way in which U.S. companies pay taxes on their foreign profits. …According to the most recent IRS data for 2009, U.S. companies paid more than $104 billion in income taxes to foreign governments on foreign taxable income of $416 billion. As Table 1 indicates, companies paid an average effective tax rate of 25 percent on that income.
Unfortunately, the New York Times either is short of fact checkers or has very sloppy editors. Here are some other egregious errors.
- Asserting that government schools are “starved of funding” when taxpayer subsidies actually have skyrocketed.
- Claiming that budget-cutting austerity nations are doing worse than “stimulus” nations, but getting the numbers backwards.
- Accidentally confirming that tax competition is needed to control the greed of the political class.
- Writing that the sequester will mean “deep automatic spending cuts” when the budget actually will climb by $2.4 trillion.
- Claiming that Italy is more prosperous than the United States and that there is less poverty.
- Urging a tax-increase budget agreement based on a chart showing that the only successful budget deal was the one that cut taxes.
And none of this counts Paul Krugman’s mistakes, which are in a special category (see here, here, here, here, and here for a few examples).
*There is an important lesson to be learned when American companies redomicile overseas. Unfortunately, the New York Times wants to make a bad system even worse.
P.S. Rand Paul has a must-watch video on the issue of anti-Apple demagoguery.
[…] I’ve shared may examples of media bias (see here, here, here, here, here, here, here, and here), I think the answer is […]
[…] the left don’t seem to realize that the foreign-source income of American-based companies is subject to tax by foreign […]
[…] The New York Times asserting that U.S. multinationals pay little tax on foreign-source income, but forgetting to include the taxes paid to foreign governments. […]
[…] The New York Times asserting that U.S. multinationals pay little tax on foreign-source income, but forgetting to include the taxes paid to foreign governments. […]
[…] Tax Foundation churns out lots of good information, but I especially look forward to their International Tax Competitiveness […]
[…] Asserting that U.S. multinationals pay little tax on foreign-source income, but forgetting to include the taxes paid to foreign governments. […]
[…] was very bad policy, completely contrary to the principle of “territorial taxation” that is part of all market-friendly tax reforms such as the flat […]
[…] Asserting that U.S. multinationals pay little tax on foreign-source income, but forgetting to include the taxes paid to foreign governments. […]
[…] other countries impose plenty of tax on American firms operating […]
[…] other countries impose plenty of tax on American firms operating […]
[…] Asserting that U.S. multinationals pay little tax on foreign-source income, but forgetting to include the taxes paid to foreign governments. […]
[…] companies to delay an extra layer of tax that the IRS imposes on income that is earned – and already subject to tax – in other countries. It is “boring but important” because it has major implications on the […]
[…] companies to delay an extra layer of tax that the IRS imposes on income that is earned – and already subject to tax – in other countries. It is “boring but important” because it has major […]
[…] companies to delay the second layer of tax that the IRS imposes on income that is earned (and already subject to tax) in other […]
[…] than two years ago, I cited some solid research from the Tax Foundation to debunk some misguided analysis from the New York […]
[…] than two years ago, I cited some solid research from the Tax Foundation to debunk some misguided analysis from the New York […]
[…] be sure, a few good pieces hardly offset the NYT‘s long track record of economic illiteracy, but a journey of a thousand miles begins with a first […]
[…] But here’s why it’s important to read the fine print. The President wants to give with one hand and take away with the other. Yes, the corporate tax rate would come down, perhaps from 35 percent to 28 percent, but the White House has signaled that businesses would have to accept higher taxes on new investment (because of bad “depreciation” policy) and on international competitiveness (because of misguided “worldwide taxation” policy). […]
[…] I already explained, immediately following the speech, why his “grand bargain” on corporate taxes was not a good deal because of all the hidden taxes on new investment and international competitiveness. […]
[…] But here’s why it’s important to read the fine print. The President wants to give with one hand and take away with the other. Yes, the corporate tax rate would come down, perhaps from 35 percent to 28 percent, but the White House has signaled that businesses would have to accept higher taxes on new investment (because of bad “depreciation” policy) and on international competitiveness (because of misguided “worldwide taxation” policy). […]
[…] P.S. Sloppy and flawed analysis seems to be a specialty at the New York Times. […]
[…] The Tax Foundation 1 – New York Times 0 | International Liberty Buried in the fifth paragraph of the release was the curious tidbit that the new company would be incorporated in Ireland, even though the far larger acquirer was based in Parsippany, N.J. The reason? By escaping American . […]
A couple of points:
1. This article kind of goes along with Apple keeping lots of money offshore. However a lot of these companies are supposed to maximize shareholder value. If say Apple brought a lot of its offshore cash back they have to realize the gains and pay lots in taxes, which reduces value.
2. Because these taxes are sort of voluntary, a parallel could be made to the cap gains tax, where if you reduced the rate more money actually might flow into the government coffers (effectively creating a tax increase on a reduced rate). This means politicians would have to resort to other reasons for the high rate like fairness: http://www.youtube.com/watch?v=54jr3Ceu894
With the safety valves closed, Foreign companies will start overrunning (read outcompeting in value/price ratios) the American companies.
American companies already at the threshold will be overrun quickly, while others will follow in due time, as the decline of the first few springs the pitchforks into further taxing action to replace the lost revenue.
The end result will be the total replacement of many American companies with foreign companies employing foreign workers, foreign designers, foreign innovators and foreign capital. Americans will be completely cut off. With the safety valves closed, it is only a matter of time before the dams of protectionism implode.
After the adjustment, the end result may be a short lived French, or perhaps European in general, equilibrium. Except that, as we’re seeing, it is not an equilibrium, but a destiny of decline.
But hope springs eternal. Hope that more heavily taxed people will leave their unconditionally guaranteed benefits and spring out of bed every morning to leave their families behind and go work half their day for distant others — AND do so with enough drive and enthusiasm to outcompete three billion emerging world citizens. Decline needs hope to proceed.
David in Cal:
That’s reassuring.
I wouldn’t want to think that all those misrepresentations contained within OpEds actually had been confirmed by a 3rd-party.
Steven Rattner—isn’t he the the guy who paid $3000000 to settle with the Securites Exchange Commission for fraudulent practices?
Gee, does anyone really believe the NY Times “mistakes” are unintentional?
It is my understanding that the NY Times fact-checkers do not check the opinion pages.
I agree with Fishmonger about the potential utility of the NYT. The newsprint could be sent to Venezuela to resolve their toilet paper shortage, getting the treatment it so assuredly deserves.
It’s almost comical. Anyone can get the IRS data.
Net Income 919B
Inc Subject to tax 895B
Income Tax 313B (35%)
Foreign Tax Credit 93.5B
General Business Credit 13.3B
Prior Yr Min Tax Credit 1.4B
Total Income Tax 205B
Most of this, both tax and foreign tax credit, comes from the largest 6500 corporations (out of about 6 million). They do pay 35%, it’s simply a case where about a third of that 35% is paid to other countries where they gained the income. While this is simplistic, if the rate were 25%, and they operated here, 25% of 895B would be 225B, 20B more than the 205B.
I simply fail to see how this attack on the usefulness of the NYT advances any public good.
For example: I use the Times to wrap my daily catch of the sea, and fish stay fresh for hours swaddled in the latest from Rattner, Krugman, Dowd et al. It is also unbeatable as cat box liner, especially the editorial pages for some reason.
So please, enough already that the New York Times serves no useful purpose. 🙂
Reblogged this on bermanj1forchange.