FreakinDJ's Journal - Archives
Hopefully DU will have enough interest to follow this series exposing the failed Corporate Tax Structure and gain a thorough understanding of the underlying structural problems in our Corporate Tax Code. The following is merely the "Tip of the Iceberg" and typically these are subtle changes in the Corporate Tax Code that have HUGE consequences for working Americans are submitted as single line items of much larger legislation as to escape from view of the General public
Part 1 Corporate Tax Bias against US Manufacturing and Production
Under the current foreign tax credit system, excess credits on foreign corporate earnings can be used to shield Technology income from US Corporate taxation through a process know as “Cross Crediting”. Royalties and management fees are often subject to little or no tax in the foreign country in which the license or service is used. Under the network of US Tax Treaties, withholding rates are usually set at 0% or 5%. However, under current law, because Royalty and Fee income streams are grouped in the “General Limitation” basket, they can absorb excess Foreign Tax Credits generated by other High-Taxed general limitation income. The result is that the United States collects almost no tax on foreign royalties and fees.
To illustrate – the Royalties and License Fees paid by a Japanese subsidiary to a US parent corporation would be fully deductable from the Japanese firm’s corporate income tax, (taxes at a 40.7% tax rate in 2005) and would not be taxed by Japan when paid to the US Parent firm.
Because of these interactive tax features, royalties and fees earned abroad are often taxed at a lower rate then comparable technology income earned in the United States. This creates a perverse incentive to exploit “Intellectual Property” overseas rather then in the United States. Because of Consolidating the number of foreign tax credit baskets from 9 to 2 in the beginning of 2007 under the “American Job Creation Act. This increases the opportunities for cross crediting, giving further incentive to exploit technology abroad rather then United States production.
The rising commercial importance of “Intangable Assets” along with Royalty and Fee income, makes the Tax Policy towards them an important issue. During the 10 year period between 1996 and 2005, US MNC’s (United States MultiNational Corporations) increased their receipts from exports of goods and services by 50%, but increased their receipts from exports of “Technology Royalties and License Fees” by 75%
The use of US Technology abroad is generally good for both US firms and the World Economy, but we see no sense in a tax bias that encourages High Technology production abroad at the expense of High Technology production in the United States.
Admittedly I haven't researched this enough, but I am not sure the Off Shore/China manufacturing model works without the "Off Shore Profits Tax Exemption"
China has a flat 25% Corporate Tax WITH a 10% Capitol Gains Tax applied on top. Additionally any goods or materials shipped into China is subject to a 20% import tariff. America has a 35% Corporate tax but the Effective Tax Rate of Corporations is 23%. Huge MultiNationals such as Google or GE armed with divisions of Tax Attorneys and numerous resources to avoid taxes at their command commonly pay effective tax rates of 2 or 3%
My question is does the Off Shore production / sales in United States model of Corporate business WORK without the Off Shore Tax Exemption ?
Here is what is really perplexing - Grover Norquist and Bill Clinton AGREE on the need to move away from the current Corp Tax system loaded with special interest tax exemptions and move to a flat 25% Territorial Corporate Tax system void of the numerous loopholes.
For 1 that would level the playing field between the Huge Multinationals and smaller upstarts. It is Small Business that creates 67% of all new jobs in America, but those small businesses can't afford a fleet of lawyers nor the capitol required to partake in all of the tax dodges. Subsequently they are all too often gobbled up by the larger Tax Dodging Multinationals, the workforce laid off, and production facilities moved off shore.
So far that model has moved an estimated 43,000 manufacturing facilities offshore at a cost of 3 million US manufacturing jobs
A Day in the Life of the Long Term Unemployed
I was scavenging around trying to rustle up some thing to eat this morning, when I thought to myself “Do these politicians arguing in Washington over the Debt/Deficit/Taxes actually understand what people are going through? After checking the fridge I reluctantly decided on 2 Peanut butter and jelly sandwiches only to find after spreading peanut butter on 2 slices of bread we were out of Jelly. Damm I thought, I wonder if any of those stuffed suits have ever had to make decisions like these.
Up until 7 ½ months ago I was considered “Upper Middle Class” earning slightly over $150K annually. Not the product of a 4 year University but rather a “Self-Funded” education through serving in the US Army (volunteer) during Vietnam so I could take advantage of the GI Bill education benefit. I came from a family of 10 and by the time I became of college age any and all surplus funds to send a kid through college were “Long Gone”. So I took one for the team, volunteered for the US Army and served in Southeast Asia servicing missiles to fund my college education.
A 2 year degree in Electronics, 2 Certification programs in Network Engineering and Process Controls later, I fit into the class of returning education professionals who continually improve their skills with ongoing education, certification, and many many licenses and security clearances.
I finally decided on Romian Noodles with frozen vegetables and an egg stirred in. I carefully measured out the additional Chicken Broth seasoning to give it flavor. Thank God for the little chest freezer stored in the garage which I stock up during the good times, I thought to myself.
I live frugally avoiding luxuries such as a Harley, Hummer, exorbitant House payment or trendy vacations to exotic locations. Instead rather I make a generous contribution to my 401K, overpay my Home loan every month and drive a 1993 Ford Escort which I had to rebuild the Cylinder Head on. I little tinkering with Port Polishing increased the MPG by 15% and I’ll happily take the increased savings over a $600 a month truck payment any day.
Anyway back to the unemployment – I can not count the number of resumes I have sent out nor can I tell you the frustration I have experienced watching the amounts of compensation offered gradually going lower and lower and even lower. I remember all too well in 1981 when Reagan took office the rampant Unemployment that ensued as a direct result of his economic policy using Unemployment to curb Inflation. I also remember the “Back to Work Wage Cut” many many Working Americans conceded to in order to regain full time employment. Then again in 1992, the McJobs wage cuts of 2002, and now the Wage Cuts have come back with a vengeance in 2011.
Well I am happy to report after several months of negotiations a serious Job offer has been placed on the table, signed and accepted. It only constitutes a 35% Cut in wages when the cost of Health Insurance is factored in. I know it seems awful but it is a lot better then unemployment and with Corporate America sitting of $ Trillions, they have all the leverage right now. Besides – short of major changes in US Energy policy I could stay at this job with their 3.3% cap on annual wage increases for another 14 years until I reach retirement age. Well that is unless the Huge Corporation doesn’t decide to close this aging facility and lay off the work force there. I’ll know for sure within 2 years if I see them making the necessary upgrades to operate the facility efficiently and economically.
Worse then that is looking to the future of my 3 sons. 2 are out of the house already, 1 gainfully employed at a job I feel beneath him making very low wages for a person expecting his first child. The other after being laid off is getting by hustling car parts out of junk yards and reselling them on Craig’s List. He hasn’t asked to move back home yet, but me and the wife have started cleaning out the spare bedroom already. A real shame a “Straight A Student” tested at Mensa Level Intelligence and halfway through a Degree in Mechanical Engineering would have to resort to that. Such is America in the land of drastic budget cuts and astronomical Wall St Profits. Reinvestment in our youth and education is merely a catch phrase designed to dupe “Low Information Voters”
Only 1 slight problem. The debilitating psychological depression I have been suffering as a result of my long term unemployment still hasn’t lifted. Again I’m quite sure our elected officials don’t even have the slightest clue of what I am talking about. Still others would accuse me of lying or attempting to milk the system. And with the prospects of what these Budget/Deficit Negotiations are going to do to America it isn’t likely to lift any time soon
This is just starting to seem less and less like America to me. Certainly not the America I remember defending when those Russian Migs circled my position so close I still remember seeing the pilot’s face. Definitely not the America I remember my mother telling me about where the “Middle Class was the Backbone of America” But more like the America where my Great Grandfather at 14 yrs old was sold into the Sweat Shops of New York in 1848 after his parents were jailed in Galway Ireland and sent to the penal colony in Australia. Ya – it’s a lot like that America
Today we are treated like a stock option waiting to be capitalized upon and traded in a lopsided bond market. No I’m pretty sure Washington has completely forgot what it means to be “American” and never ever ever knew what it was like to be on the roles of the “Long Term Unemployed”
The Philippine Government is a Cesspool of Corruption and I don't care which Wealthy Ruling Class supported Candidate or President you are talking about
Better yet - the Philippines serves as a reminder to Americans just how much damage can be done by Cronyism and Corruption run rampant through out all levels of government. Where you are expected to pay a bribe (grease money) for the simplest of government services such as obtaining a driver's license.
Forget about Property Rights, incarcerating Government officials who embezzle government funds, Fair and Open elections, attracting Multi-National Corporations to set up operations in the Over Educated, English Speaking $4 a day Work force. All of this is merely open to the Free Market system of who can pay off which Government Crony Employee with the most money the fastest.
There are 6 Wealthy Ruling Elite Families in the Philippines. Who is disappearing or being murdered, or politically suppressed is determined by which Wealthy Ruling Elite family is paying off which crony to look the other way and when
This discussion has me torn within myself. I look at those threads 100 - 200 post long of folks going at each others throat and think to myself "no sense in jumping into that 1".
Other times I start a thread of what I consider to be valid talking points and get Zero replies. Only once have I had a thread make to the "Greatest Page" and I've been posting here since early 2003 !
I too get concepts under my skin and have a hard time letting them go for the Greater Good or for what I think is "Good Reason"
What drew me to DU was the Research of the Facts - not so much the opinions.
There was a time when folks collaborated together for the Greater knowledge of the Group. You should have been here during Collin Powell's speech to the UN in the lead up to the Iraq War - it was Debunked in REAL TIME with FACTs as fast as talking heads could spin
Those were the days when DU was alive
yep it can be an experience but over all it has an incredible "Eye Opener" and a true enlightenment for me.
I remember a thread discussing Immigration and I was having a vigorous argument with a fellow DUer. I was against an open Amnesty program for various reasons. She kicked and clawed and even suggested I was some Republican Cracker paid disruptor sent over here.
I then posted a picture of my Hispanic Self and my Asian Immigrant wife
We still post in each others threads today and have a much more enlightened understanding of each other's positions. Most of which we are in total agreement on and very supportive of. But there are always going to be those sticking points. Areas do to lack of understanding or life experiences, or even higher understanding of, that folks will differ on.
That is where if we truly want to accomplish any thing we need to be tolerant and learn to teach rather then reject.
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