DeFAZIO says "DITCH THE DRAFT"
(D) Rep. Peter DeFazio and (R) Rep. Mike Coffman push to eliminate the Selective service, and deep-six the draft. Perhaps Pete figures once he disarms the populace with O's "common sense gun regulations" there will be no more war? ;-) In all seriousness, getting rid of the draft is good, even if we didn't have an all-volunteer military. It concerns me when any 3rd party, especially government, claims to "own" you. A free people should have rejected the draft all along.
GUEST INFORMATION 02-13-2013
6:35 Christine Villegas, visiting fellow with the Independent Women's Forum. (great site) Today we discuss the re-authoriazation of the Violence Against Women Act, and how this is ineffective, and a big giveaway to the "domestic violence racket".
7:10 Dr. John Lott, noted economist and author of At the Brink: Will Obama Push Us Over the Edge? We talk the president's economic record, and gun legislation. (remember, Lott wrote the groundbreaking "More Guns, Less Crime")
8:10 Dr. Dennis Powers, retired professor of business law at SOU. (dennispowersbooks.com) We don't talk history on today's segment, but rather, how big companies shift tax liabilities via the Cayman Islands and other tax havens.
The Ugland House and Offshore Tax Avoidance
By Dennis Powers
On the Cayman Islands’ George Town capital on South Church Street stands an innocent-looking, green-trimmed, white, five-story building that looks more like a five-star hotel. Named the Ugland House, it is the home to over 18,500 corporate entities, only there to avoid U.S. corporate taxes. From hedge funds and banks to well-known industrials, numbers of the largest U.S. corporations benefit well by assuming a Grand Cayman’s address of incorporation for an offshore subsidiary.
The Caymans Islands don’t have a corporate income tax that could tax those sheltered profits. In late 2011, Citizens for Tax Justice analyzed the tax payments of 280 of the Fortune 500's largest companies. Seventy-eight of the 280 companies paid zero or less in federal income taxes during at least one year from 2008 to 2010. Some of the names: Bank of America, General Electric, Microsoft, Apple, Verizon, DuPont, Boeing, Mattel, Honeywell, and many others. As one example, in 2010 GE earned $7 billion in the U.S. but paid no federal taxes to the U.S. government. It is the same now.
How does this happen? The answer: transfer pricing. Companies can buy and sell products and/or services through their own offshore subsidiaries and set the prices artificially--lower on exports (from the U.S. to the subsidiary) and high for the final imports (to the final destination). The actual operations don’t change, only the burying of the profits in an overseas subsidiary. And as companies carry two different books--one for taxes and the other to report earnings--investors don’t see this practice.
Profits earned through a U.S. company’s foreign subsidiary are not taxed until the cash is brought back as a dividend to its U.S. parent. Although our federal corporate income tax rate is the highest at 35%, it’s estimated that this practice lowers the effective tax rate of the largest U.S. publicly traded companies closer to 20%. An estimated $1 trillion of profits by U.S. companies sits in offshore cash and short-term investments in offshore holding companies and has never been taxed by the U.S. Two conspicuous examples include Microsoft and Apple, which hold $50 billion and $100 billion in cash, respectively, in offshore accounts.
The problem becomes complex in that the U.S. is the only major country with not only a very high corporate tax rate, but the only major one with substantial taxes on bringing back any profits earned overseas. And the Ugland House isn’t the sole issue. If a tax haven is defined as one that attracts non-resident funds with light regulation, low (or zero) taxation and secrecy, then the world has 50 - 60 such havens. More than 2,000,000 companies and thousands of banks, funds and insurers are there. Nobody really knows how much money is stashed away: estimates vary from way below to way above $20 trillion.
For example, London pioneered offshore currency trading in the 1950s and still specializes in helping non-residents get around the rules. Other European Union countries are global hubs where companies can divert profits to shell subsidiaries into low-tax Luxembourg, Ireland, and the Netherlands. Under U.S. laws, Miami operates as a massive offshore banking center that offers protection to depositors from emerging markets.
Both Republicans and Democrats agree the 35 % U.S. corporate tax rate is too high. Yet discussions over the corporate tax ended during the recent fiscal cliff negotiations, partially due to the budgetary math. Neither party has identified enough revenue increases to offset the $1.2 trillion cost over 10 years of lowering the corporate tax rate to a more reasonable 25%. And the corporate tax by itself doesn’t raise much money: barely more than 2% of GDP (8.5% of tax revenue) in America and 2.7% in Britain.
Yes, tax systems must be reformed. Governments need to make it harder for companies to use internal (“transfer”) pricing to avoid taxes. Companies should be made to book activity where this actually takes place. An international agreement along those lines is needed, along with the U.S. changing its own policies in pace with the world’s.
Political rhetoric unfortunately distorts the reality. Last year’s presidential nominee Mitt Romney was excoriated by Democrats for his holdings in the Cayman Islands. Now Jack Lew, Barack Obama’s nominee for treasury secretary, is under fire for once having an interest in a Cayman fund. So the issue--and Ugland House--continues on.
See “Ugland House Explained,” at Ugland House Website; also see The Economist, “The Missing 20 Trillion,” February 16, 2013, at Corporate Taxation, as well as Wikipedia: George Town, Cayman Islands” at George Town, Cayman_Islands.
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