Imagine you are the CEO of a large U.S.-based company with operations in several countries. You have to decide whether to keep your company and many of its high-paying jobs in the U.S. in 2013, or move overseas. The move, along with reducing U.S.jobs, would also reduce tax revenue for our local, state and federal governments.You have a lot to consider, but one key issue is the level of taxes that your company must pay. Even if your company retains its home address in the U.S.for another year, it will continue to keep much of its profit and cash
offshore, and won’t invest that cash to grow in the U.S. Why? Because the U.S. corporate tax rates are much higher than most of the rest of the world, and they are based on a global, rather than a territorial, system (unlike most industrialized nations).
In a territorial tax system, a company pays the applicable local tax on the operations in the country where the income is earned. So the income and the tax are matched and segregated from other income. In a worldwide system, a company must pay the U.S. tax rate on all its income worldwide, less only a credit for the tax already paid abroad. So worldwide means that if you earn profits overseas, when you bring those funds to the U.S., you must pay the higher U.S.tax rate.
This is a perfect example of the difference between tax rates and tax revenue. If the rates were lower, then companies would repatriate and invest more here, increasing productivity and raising wages. The resulting growth would create more income for the company and therefore more tax revenue for all governments. The pie will get bigger for everyone. Lower rates (particularly combined with ending corporate crony-loopholes) will create higher revenue. Why is this so hard for Progressives to understand? Presumably they do, but want to feel good about socking it to companies. And of course they also sock it to the companies’ (former) employees, and to the governments to whom they pay no, or less, taxes.
While this may at times seem to be a complex issue, the core idea is simple: corporations and people flee places with higher tax rates. There is an excellent and understandable explanation, with recommendations, in this article by Diana Furchtgott-Roth.
In summary, your company is coping with higher costs and is trying to minimize those costs by keeping as much of its profits and cash offshore. This is the reverse of what our nation needs. And perhaps now you will move the company’s headquarters offshore. What motivates you to do so? Progressives want to sleep better at night, feeling good that they are making your company pay its “fair share” of high taxes. Until you leave.
This is another real-world, non-campaign-rhetoric example showing why, tragically for our nation, the incentives already exist to move our best jobs overseas. Our government, through its misguided policies, is already showing your company the door.