Monday, October 7, 2013

Are American-Based Multinationals Really American?

The eminent economist Robert J. Samuelson recently made an interesting point in the debate over large, profitable American corporations paying taxes at rates lower than those for many middle-class workers. Apple, in particular, has drawn attention for paying only a few percent in tax on $74 billion in profits earned between 2009 and 2012. Samuelson notes that such (legal) tax avoidance is a difficult sell to Americans, especially when they pay higher tax rates than huge corporations. At the same time, however, be believes that many Americans take pride in the success of American companies like Apple that dominate a sector of the global economy. This success would obviously be lessened if Apple had to pay out billions more to the U.S. Treasury.

But Samuelson notes that American companies increasingly rely on foreign revenues for their success. They build manufacturing, distribution, and sales markets overseas and experience greater growth in those markets. Viewed in this light, is Apple truly an American company in a profound sense, or is it simply a global giant that happens to have its headquarters in the U.S.? This question is especially fitting given that multinational corporations are increasingly the object of what is essentially a bidding war between countries; countries try to lure businesses by offering lower taxes and more lenient regulation. If multinationals focus on the bottom line when choosing a country, one would expect that Americans will eventually stop viewing them through a patriotic lens.

Samuelson notes that the U.S. tax code drives multinationals’ behavior. The U.S. nominal corporate tax rate of 35 percent is the highest among developed countries (although the effective rate is lower after deductions and credits are taken into account). But U.S.-based multinationals take advantage of the fact that their foreign profits are not taxed by the U.S. until they are repatriated. Unsurprisingly, U.S. corporations have accumulated almost $2 trillion in foreign earnings that have not been repatriated and thus have not yet been taxed by the U.S. Samuelson proposes a compromise: raise taxes on the foreign earnings of U.S. corporations, and use that revenue to slash the 35 percent corporate tax rate.

Learn more about Asset Protection Lawyer Joe B. Garza through this piece on Tax Reform