Vote Obama: Bite the Hand That Feeds You
My roommate and employer, Michael (the "M" in WM Media), came home today from an uncharacteristically long walk. He must have had an epiphany or something, because he immediately launched into a rant about America's corporate income tax rate and how the future of said rate is highly dependent on the result of next week's Presidential election. Currently, the U.S. corporate income tax rate is the second highest among developed nations of the world. Relatively speaking, it hasn't always been "high". In fact, a significant (if not the significant) reason for America's summit to the position of "world's superpower" is because during its development, it had one of the lowest corporate tax structures in the world. That is no longer the case.
Realizing an opportunity to lure wealth back into their nations, European countries have been slashing their corporate income tax rates. As the above link shows, this decade, in particular, has seen most European nations decrease their corporate tax rates. One of John McCain's platforms is to cut the corporate tax rate to 25%, which would roughly mirror the European average. Such a reduction would largely silence "exit strategy" discussions among U.S. companies, like the one Michael had with me regarding WM Media, about relocating to a place like Ireland where the tax rate is only 12%.
Businesses relocating out of the U.S. will become more and more common under an Obama administration. While he hasn't explicitly stated an intent to increase the corporate tax rate, we have no reason to hope for a decrease. What will likely happen under Obama is surreptitious changes to tax policy aimed at increasing government revenues at the expense of companies. One way this can be done is by closing loopholes that allow companies to defer paying taxes on their overseas profits. This will send billions of dollars from outfits like Pfizer and Exxon-Mobil (both of whom have over $50 billion parked overseas) into the pockets of the government. Since an extrapolation of this will be plummeting share prices of such companies (both members of the S&P 500), Obama can't risk enacting his socialist policies in this current economic climate. Expect him to bide his time waiting for the economy to turn around. When it does, he'll have the momentum of a bull market and (presumably) a Democratic congress at his back to implement crippling economic policies to this country that could take decades to undo - if they're ever able to be undone at all.
Right now, WM Media is too small to seriously contemplate a move to Ireland. The savings from doing so would be wiped out by an increase in the cost of living, not the mention the hassle that moving overseas entails. However, it's not out of the question that the business will be making, say, $150,000 a month by 2011. With $1.8 million a year in revenues, our options are a.) pay $225,000 annually in taxes to Ireland or b.) pay $648,000 to America (calculated at 35% corporate tax rate + 1% state tax rate in Texas... state average is 4%). That's a savings of $423,000 in just one year! If you don't know much about the value of money compounded over time, spend five minutes playing with this calculator. The value of WM Media circa 2025 could literally be influenced by tens of millions of dollars depending on whether or not we relocate to Ireland. And the likelihood of whether or not we relocate to Ireland is very much hanging in the balance of this Presidential election.
Of course, to justify why we should be paying taxes to Ireland and not the IRS, we'll need to fully set up shop to a degree that includes hiring Irish workers. In other words, not only will the U.S. be missing out on the revenues generated from our business, its citizens will be missing out on job opportunities as well. If you think you work in a field that won't be impacted by this, think again. First, you might be surprised how easy it is for a company to pick up and move (nothing motivates like money!). Second, if all of the other companies are moving, the price of labor (read: American workers) will go down, meaning the energy you spend hoping for a raise will need to be replaced with hopes that your job isn't given to someone more qualified. A recent lay-off from an IT firm or a medical research company will certainly be eye-balling jobs that were previously "below them".
At the thought of American companies packing up and heading to lands of better opportunity, my friend Katy inquired, "ugh... well how will the U.S. government get money then?!" That's the whole point! They won't!
When you bite the hand that feeds you, it stops feeding you, and you starve.
Realizing an opportunity to lure wealth back into their nations, European countries have been slashing their corporate income tax rates. As the above link shows, this decade, in particular, has seen most European nations decrease their corporate tax rates. One of John McCain's platforms is to cut the corporate tax rate to 25%, which would roughly mirror the European average. Such a reduction would largely silence "exit strategy" discussions among U.S. companies, like the one Michael had with me regarding WM Media, about relocating to a place like Ireland where the tax rate is only 12%.
Businesses relocating out of the U.S. will become more and more common under an Obama administration. While he hasn't explicitly stated an intent to increase the corporate tax rate, we have no reason to hope for a decrease. What will likely happen under Obama is surreptitious changes to tax policy aimed at increasing government revenues at the expense of companies. One way this can be done is by closing loopholes that allow companies to defer paying taxes on their overseas profits. This will send billions of dollars from outfits like Pfizer and Exxon-Mobil (both of whom have over $50 billion parked overseas) into the pockets of the government. Since an extrapolation of this will be plummeting share prices of such companies (both members of the S&P 500), Obama can't risk enacting his socialist policies in this current economic climate. Expect him to bide his time waiting for the economy to turn around. When it does, he'll have the momentum of a bull market and (presumably) a Democratic congress at his back to implement crippling economic policies to this country that could take decades to undo - if they're ever able to be undone at all.
Right now, WM Media is too small to seriously contemplate a move to Ireland. The savings from doing so would be wiped out by an increase in the cost of living, not the mention the hassle that moving overseas entails. However, it's not out of the question that the business will be making, say, $150,000 a month by 2011. With $1.8 million a year in revenues, our options are a.) pay $225,000 annually in taxes to Ireland or b.) pay $648,000 to America (calculated at 35% corporate tax rate + 1% state tax rate in Texas... state average is 4%). That's a savings of $423,000 in just one year! If you don't know much about the value of money compounded over time, spend five minutes playing with this calculator. The value of WM Media circa 2025 could literally be influenced by tens of millions of dollars depending on whether or not we relocate to Ireland. And the likelihood of whether or not we relocate to Ireland is very much hanging in the balance of this Presidential election.
Of course, to justify why we should be paying taxes to Ireland and not the IRS, we'll need to fully set up shop to a degree that includes hiring Irish workers. In other words, not only will the U.S. be missing out on the revenues generated from our business, its citizens will be missing out on job opportunities as well. If you think you work in a field that won't be impacted by this, think again. First, you might be surprised how easy it is for a company to pick up and move (nothing motivates like money!). Second, if all of the other companies are moving, the price of labor (read: American workers) will go down, meaning the energy you spend hoping for a raise will need to be replaced with hopes that your job isn't given to someone more qualified. A recent lay-off from an IT firm or a medical research company will certainly be eye-balling jobs that were previously "below them".
At the thought of American companies packing up and heading to lands of better opportunity, my friend Katy inquired, "ugh... well how will the U.S. government get money then?!" That's the whole point! They won't!
When you bite the hand that feeds you, it stops feeding you, and you starve.
posted by Cory Albertson at
8:04 PM
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