Wednesday, October 10, 2012

Corporate taxes at the Debate

In the debate Obama said that the USA was paying corporations to move out of the country. Romney responded correctly that he had never heard of such a thing. The truth is Obama and the Democratic tax policies are in part running corporations out of the country.

We all know this is a global market. Any successful major corporation is doing business out of the country. In all except the USA a corporation pays corporate taxes only on the money earned in that country. If a Japanese corporation operating in the USA moves those earnings after US taxes into a Japanese bank, there are no additional taxes.

Let’s say that an American based company earns profits in Ireland that has a 15% corporate tax. If that company wishes to deposit those earnings in an American bank or use them to build a manufacturing plant they will have to pay an additional 20% corporate tax. In short, the corporation must pay the difference in tax rate between the country in which the money was earned and that of the USA, which has the highest corporate tax in the world.

It’s for this reason corporations are holding trillions of dollars outside the country. Romney wants to provide amnesty on those funds so they can be brought into this country with no penalty. We must ask ourselves, is it better for that money to remain in a country like Japan, or brought home to allow expansion and the creation of jobs in this country?

An argument by the left is that corporations are moving manufacturing out of the country so they deserve this penalty. Corporations move manufacturing out of the company for many reasons ranging from environmental regulations to employee benefit cost. As long as countries like China purposely devalue their currency and use American dollars to build their military, Americans manufacturing will never be able to compete in labor intensive processes.

Despite this, Americans have managed to find jobs, but mostly in the service industry. Unless we create jobs that produce an exportable product we will continue to decline. The main export of the USA is food, technology, and natural resources such as coal and natural gas. Because of strict environmental regulations three of these exports are being threatened. It’s truly a sad day when a man running for president is trumpeting 7.8% unemployment as an accomplishment.

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