PrintOctober 23, 2010
Yes, Taxes Do Change Behavior
Bloomberg Businessweek details the complicated "Dutch Sandwich" tax strategy employed by Google to avoid the massive tax hit it would incur on overseas profits repatriated to the U.S. After reading this and seeing the lengths that U.S. companies go to protect their profits, can anyone seriously believe that taxes do not influence behavior? Should anyone be surprised that these innovative companies are able to develop innovative tax avoidance strategies? Let me point out that these are perfectly legal tax avoidance strategies and it is management's duty to pursue every legal opportunity to minimize corporate tax obligations to maximize shareholder value.
This article clearly demonstrates that confiscatory U.S. corporate tax rates are ineffective in raising revenue, and only serve to drive corporate profits offshore where they are unavailable for investment in U.S. expansion opportunities. Today's electronic infrastructure makes it possible to park capital at low-rate tax havens through complicated routes in the blink of an eye.
Given the abysmal state of our economy, it is a travesty not only to allow the Bush tax cuts to expire, but also fail to address the reality that the U.S. corporate tax rate is being subverted through well-known legal tax avoidance strategies by multinational corporations who have no need to subject their profits to the second highest tax rates in the free world. America has ceded its place as the safe haven of capital in the world to offshore locales such as Bermuda and the Cayman Islands through its onerous tax rates.
Progressive policies advanced by both Democrat and Republican administrations have managed to drive the wealth of our multinational corporations overseas all in the pursuit of an elusive fairness. Voters now understand that this wealth will not be available to create U.S. jobs and they are demanding change. They also realize that innovative companies and individuals will continue to protect their capital and wait out the destructive policies of the current administration that have created unprecedented uncertainty in the markets.
