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Corporate Tax Avoidance
Courtesy of Russ Winter of Winter Watch at Wall Street Examiner
Not to pick on just Microsoft, but they typify the method that large US multinationals use to lower taxes, and thus “beat on earnings”. Below is MSFT’s income tax discussion. They lower their effective tax rate a full 7% by taking foreign income to $19.2 billion from $15.4 billion, and lowering US income (and expenses) from $9.6 billion to $8.9 billion. Today MSFT is effectively a 68% foreign operation. In return they get all the benefits of stimulus and minimize the costs of supporting the US system.
Twelve months ended June 30, 2011 compared with twelve months ended June 30, 2010
Our effective tax rates for fiscal years 2011 and 2010 were approximately 18% and 25%, respectively. Our effective tax rate was lower than the U.S. federal statutory rate and our prior year effective rate primarily due to a higher mix of earnings taxed at lower rates in foreign jurisdictions resulting from producing and distributing our products and services through our foreign regional operations centers in Ireland, Singapore, and Puerto Rico, which are subject to lower income tax rates. In fiscal years 2011 and 2010, our U.S. income before income taxes was $8.9 billion and $9.6 billion, respectively, and comprised 32% and 38%, respectively, of our income before income taxes. In fiscal years 2011 and 2010, the foreign income before income taxes was $19.2 billion and $15.4 billion, respectively, and comprised 68% and 62%, respectively, of our income before income taxes. In fiscal years 2011 and 2010, the reduction of the U.S. federal statutory rate as a result of foreign earnings taxed at lower rates was 16% and 12%, respectively.
One of the big economic winners, Apple Computer, is even worse, hardly paying a thin dime to a US Gumnut tottering towards insolvency. Here is the big picture of this foreign company getting US benefits going back a few years. Little wonder so much largesse flows into the hands of so few. Matt Taibii gets into some of the particulars. Bloomberg’s Jesse Drucker estimated that Google all by itself has saved $3.1 billion in taxes in the past three years by shifting its profits overseas. If the US is looking for a source to close its out of control deficits I have some suggestions.
source: Capital IQ
Looking at the Daily Treasury Statement for the calender year through July 20, one can easily view the impact of these loopholes and deals that have been cut with the corporation sector at large. When one hears talk of tax reform, and closing tax loopholes, prepare to duck and cover if you are an ordinary American. Taxes collected for CY 2011 for the corporation year to date were $131.5 billion, versus $167.2 billion for the same period in CY 2010, down nearly 17% YoY. Little wonder there are so many earnings beats from the corporate sector. Often taxes paid is a good measure of the reason. Works great as long as you ignore the fiscal blowback.
Source: Rolling Stone
Mark Kreiger writes a spot on piece on the high end luxury bubble. All I can say on this one is “that great minds think alike”. These are basically my quotes and key points. Here is one classic and to readers, a familiar sounding gem, “The social crisis facing the country as a result of the most egregious plundering in modern American history will spell the end of the “high end” theme. Buying into this trend now is like getting long Marie Antoinette’s unsevered head in 1792.” In addition he references the Bloomberg article about cash strapped consumers going to credit cards to support fuel and food consumption.
“The swings in purchases of fuel and food have been “dramatic,” Tavares said. The volume of gasoline purchases placed on credit cards jumped 39 percent last month from a year earlier, compared with a 21 percent increase in June 2010, he said. Food shopping increased 5 percent.
This post is reprinted from Russ's premium service, Russ Winter's Actionable. Click here for information.
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So your answer is the government
They're destroying their business models if they refuse to pay up. It's insanity really and the Federal government has only themselves to blame if they refuse to make these corporations fit the bill as was done in WWII. There is no functioning banking system in the USA...or the rest of the world for that matter...so long as the USA has trillion dollar deficits for as far as the eye can see. of course this is provided there actually is a solution. there may not be. in that case these businesses are all going the way of Rupert Murdoch's media empire: "pay yourself first." I listened to David Stockman: a national sales tax and a tax on foreign oil were his primary solutions. A 90 percent "profits tax" on businesses with over a million in revenue? didn't hear that one. clearly we can no longer treat corporations as "individual people" for tax purposes. Why are these CEO's (not event the retired ones!) not speaking out or up even? How can they possibly see this condition as to ANY company's benefit? gettting rid of the AMT is not possible. the same is true for eliminating the interest rate deduction on mortgages since "if your property is now worth 1/10th what you paid for it...you still have the mortgage." I think Senator DeMint is spot on to say he will fillibuster such legislation. Clearly though the "war on terror" was done to benefit Empire Incorporated: the failure of this latter "empire" would be catastrophic to the Federal Government and as well to each of the constituent states that make up this Union. We shall see.
Your rant is full of ignorance. There is no way to raise enough taxes to cover the deficit. We are taking in $2.2 trillion and spending $3.8 trillion this year. The tax rates would have to nearly double across the board in order to balance the budget. You take all that money away from people and they won't be able to pay their bills or even put gas in the car to get to work. Most convenience stores and gas stations have over $1 million in revenue. Are you going to tax them at 90%? Your "solutions" are plain stupid.
Corporate tax rates should be reduced to zero for companies that employ all of their workers inside the United States. If you want to raise taxes on corporations, do it to the ones that offshore.
Here, here. Let's stop shooting ourselves in the foot and worry about the good ole US of A. We certainly seem to have lost our way these past few years, it's time to look after ourselves and get ourselves disentagled from everyone else's problems. While we're at it let's stop having these stupid oil wars and get the hell out of the Middle East, isn't that what Oboma promised?
He made lots of promises and hasn't kept any of them. Why would you think he would have kept that one?
Not a bad idea, and bring scheduling laws to employment as well as banking law - to where technical compliance isn't enough.
Just genius, sounds like something Washington DC would dream up.
How do you propose a company exports even a single dollar of goods if they are penalised for having overseas employees?
we should have harmonised fiscal rates amongst countries of same level of development. That way fiscal incentive for making private sector investment becomes neutral and its the dynamics of relative markets that decides where investment goes.
Microsoft sells most of it's products to the 95% of the world not in the USA.
Why the hell would I, as an Australian consumer be happy for some shmuck politician in your country to make "deadbeat corporations pay" driving up the input costs into my life and funding aggression worldwide?
Interesting that Ilene should mention McSoftware, where the official "genius-in-residence" Nathan Myhrvold worked, and now runs Intellectual Ventures, a complete financial and tax avoidance scam
http://www.thisamericanlife.org/radio-archives/episode/441/when-patents-attack
(In a rare burst of investigative reporting, Planet Money and This American Life did an excellent report at the site above.)
The make mention of 1300 holding companies, but the purpose is not simply to hide ownership (a traditional purpose), but to avoid taxation by locating those shell companies offshore, where they are the holder of record of those individual patents.
Whether profit shifting, transfer pricing, hiding capital (and debt) offshore, or located their IP (patents, trademarks, etc.) offshore, there are an almost infinite number of schemes the supercrooks empoy.
[Sidebar: when I was a contractor at McSoftware back in the late '80s and '90s, I would constantly inquire as to what Myhrvold ever contributed to that company as he made hundreds of millions there in stock options, but nobody could ever explain what he did nor what he contributed --- much like a later employee, Naveen Jain.]
Because the alternative is very, very bad. I love Australia, but with all due respect you are not isolated from the effects of a huge dollar crisis problem; it'll be a lot cheaper if the crazies in Washington can get these frigging Corps. to pay up and make the bookeeping, at least "look" respectable.
Let's say they collect an extra $200 billion from these corporations. Then you repeal the Bush tax cuts and get another $120 billion. Now we go from a $1.7 trillion annual deficit to $1.4 trillion. At what point will your type understand that it's not because we are undertaxed. It's because they are overspending. Both sides are overspending on wars, welfare, bailouts, tens of thousands of lawyers making $120K/yr working for dozens of federal agencies.
Federal spending under Clinton in 2000 was $2.1 trillion
Federal spending under Obama in 2010 was $3.9 trillion
It's funny watching how brain-dead liberal freaks work so hard to drive themselves jobless. They try to extort huge tax from the profitable business owners who then have to flee from such madness to oversea to survive and shift the jobs over there along the way. Then the liberals wonder why they cannot find jobs while unable to connect the dots. "Perhaps we have not taxed enough?" Well, one word to sum up the reason for them: KARMA.
I think corporate taxes should be raised and barriers erected so the bastards cannot move to lower tax districts, look what Boeing is doing. We need ways to empower labor and make it easier to unionize. Then we will have paradise, comrade.
Except the problem occurs when the US decides to go overseas and repatriate to wherever it pleases. It's all fun and games until some businessman attracts some bureaucrat to have the DoD get the guy and seize his assets.
At some point, the people not with business might side with the bureaucrats - due to all the collateral damage caused by business. Love it, hate it, but that's how things are.
Yeah the DOD is going to invade China, Mexico, Switzerland, or Japan. I'm sure limp-wristed metrosexuals like yourself will lead the charge
It's sad watching brainless conservatives work so hard to spout tired theories completely unsupported by facts. When taxes on corporations and the top 2% of earners were higher in this country, our economy was at its strongest and more jobs were created by those corporations and job creators.
Quote: "When taxes on corporations and the top 2% of earners were higher in this country, our economy was at its strongest"
Right ... that was simply during the days when China, Russia and the other commie nations were still in chaos and thus shut their vast cheap labor pool down from the rest of the world. Once that gate is lifted it's game over for you day dreamers. You can dream of how high tax creates more jobs but in the real world business goes where the labor cost is low. That's how economy works. Don't try to fight it. Follow it.
I bet you already are following it. If one grocery shop charges the same products 10% lower than another I bet you'd be more interested in the former shop. You just have not connected the dots yet.
I am neither liberal nor conservative because neither group has connected the dots. The problem is a natural inclination of late stage finance capitalism to concentrate political power, as evidenced by our oligarch's control of both major political parties. The vast majority of corporate profits are today generated through wage and regulatory arbitrage, not through innovation. As a result, our political leaders are incapable of creating jobs with any of the traditional tools of fiscal or monetary policies. Either form of "stimulus" simply stimulates jobs in those countries that enjoy the lowest wage and cost structure.
But if you want to blame somebody, blame those who supported the idea of free trade with non-democratic countries. You'll find them at the top positions of power in both parties. And if you want to read somebody who saw this coming a long time ago ---- the undersecretary of Treasury in the Reagan administration no less ---- read anything by Paul Craig Roberts. Oh, and he used to write a weekly column for the so-called liberal Newsweek. But once he started questioning the benefits of free trade, he was exiled from any mainstream publications. He now writes obscurely for Counterpunch.
Sir James Goldsmith also warned what was coming way back in 1994:
http://video.google.com/videoplay?docid=5064665078176641728&ei=qJCpSqb_K...
+ millions of now unemployed Americans.
You are exactly right. Unrestricted trade benefits only the Oligarchy.
People and the world are not static.
Smart business (and individuals) migrate efforts and activities to where they are most beneficial.
In a free society, higher taxes and more regulation drives business and activity towards alternatives.
Period.
Except that people will eventually get a government to cut off that migration - when it harms more than just the government.
You mean build a Berlin Wall that prevents people from escaping this free country of ours?
An alternative for any free enterprise is to contract or unwind.
That's where state control and socialism conflicts with freedom and the people get the government and the serfdom they so obviously deserve.
I'm just waiting for the Administration to announce a "Five Year Plan" instead of a ten year deficit reduction program.
+2%
But don't forget that while tax avoidance is a natural part of capitalism, capturing the government in order to profit in largesse is an entirely different matter.