Last time, in this Daily Republic column, we talked about why corporations are so cold-hearted. The main point was that the people who run publicly traded corporations have a fiduciary responsibility to their shareholders to make as much money as possible, and thus, in the corporate “Bible,” the concepts of good and evil are replaced by profit and loss.
We also discussed the recent, unprecedented exodus of American jobs and I wrote: “Next time, let’s discuss what we can do to encourage multinational corporations to re-invest in America. Please share your thoughts on the Daily Republic website.”
While there were more than 150 online comments made on the column, and dozens of emails, very few of them offered viable suggestions. One commenter suggested that we should “eliminate the corporate income tax.” Let’s look at that.
While the top federal corporate tax rate is 35 percent, according to the Government Accountability Office, the average tax rate for U.S. corporations is 12.6 percent. How many of you Fairfielders wish that was your tax rate?
Due to creative accounting and manufactured loopholes, the percentage of federal income derived from corporate taxes has dropped from around 32 percent in the 1950s, to less than 9 percent now, with individual taxpayers making up that difference.
One corporate slight-of-hand accounting trick, currently popular, is the “tax inversion.” With that, U.S. corporations purchase foreign companies, or open offices in low-tax countries and then, in essence, “renounce their U.S. citizenship,” and claim that their tax liability now resides in that foreign land.
Not counting banks, U.S. corporations currently have about $5 trillion in liquid assets, with about half of that amount in overseas subsidiaries. Many economic writers claim that money is now “trapped” overseas, unavailable to create jobs in the U.S., but a “tax holiday” would bring it back home, create jobs and stimulate our economy.
Don’t be fooled. Corporate money is not “trapped” anywhere. It floats freely from bank to bank, wherever in the world the corporation wants it. However, since payment of U.S. taxes on foreign profits can be deferred, what is “trapped” is simply the payment of corporate taxes to Uncle Sam. We fell for that “corporate tax holiday” trick in 2004 and besides the lost federal revenue, it resulted in a doubling of corporate overseas cash holdings, and job losses in the U.S.
One solution to the escalating legal avoidance of corporate taxes is the “single sales factor apportioned corporate tax.” The idea is to tax corporations based on where actual sales are made, not some phony-baloney Accountingland where profits are reported. Thus, if 99 percent of a company’s sales occur in the U.S., then the U.S. taxes them on 99 percent of its worldwide profits. This tax would treat large, multinational corporations the same as smaller domestic companies, and eliminates a powerful force driving U.S. businesses abroad.
While the $5 trillion in liquid U.S. corporate assets is a record high amount, our banks are currently sitting on $2.6 trillion in “excess reserves,” also a new record, which is enough to provide $26 trillion in new loans. Clearly, giving corporations more money is not the ticket for stimulating U.S. job growth.
The real key to increasing American jobs can be found in your own pocket. The principal reason a company hires more employees is that they can’t keep up with the demand for their product or service. Since the biggest driver of American jobs is the American consumer, we should all buy American products whenever possible, and the closer you are to the source, the better it is for you and your neighbors.
Look around. Think globally, but shop locally.
Mike Kirchubel grew up in Fairfield and is the author of “Vile Acts of Evil – Banking in America.” He can be reached at [email protected]