HIGH CORPORATE TAX RATE IS ONLY ONE ISSUE FOR COMPANIES TO LEAVE THE US

The 60 MINUTES News Program on the US corporate exodus was only partially correct.

...Halliburton moved its headquarters to Dubai, United Arab Emirates in March 2007.

I have been a fan of 60 MINUTES for many years. And the main reason for that is, as compared to operations such as the Fox Network, for the most part, you can trust what you hear from 60 MINUTES as being as close to the real truth as possible. In fact, they are one of the few, real, investigative network news operations still around. Most of the other national news programs today are seriously slanted and totally based on the politics of the network´s corporate owners.

That being said, the latest 60 MINUTES program featuring their long-time reporter Leslie Stahl, regarding why businesses have left the US and the US corporate tax rates being the "world´s highest" was not totally correct.

One thing we also must remember is that Ms. Stahl is herself, a millionaire TV celebrity. I´m sure that due to her many, highly-paid years in national broadcasting, her personal business is probably incorporated for protecting her assets. Therefore, much of what she might be presenting regarding corporations might also apply to her personally. Now, there is nothing wrong with all of that. But it should be made clear that she was not reporting on something that is totally unrelated to her personal circumstances.

Now, back to my comments regarding Ms. Stahl´s 60 MINUTES episode on US corporations and US tax rates.

During the show, Ms. Stahl interviewed a number of corporate individuals, both here in the US and in Europe. With all of those she interviewed, they all referred to how the US tax rate is the "highest in the world". And throughout the program, all those interviewed referred to how this was "the primary reason that multi-national corporations were moving their headquarter addresses to countries such as Bermuda, the Cayman Islands and Switzerland." This is not a totally correct statement.

John Chambers, the CEO of Cisco Systems was one of Ms. Stahl´s interviewees. During the interview, Mr. Chambers confirmed that many US corporations may use their US facility for their Research & Development efforts. They can then transfer their new product codes or their new product formulas (a paperwork transfer) to other nations where they have established a somewhat "bogus" headquarter locations. And these foreign "Headquarters" might just be a Post Office Box or a rented conference room in a multi-story building. In this way, when the company sells their new products, the sales are not US sales that are subject to US taxes. Instead, they are sales for the country to where the "products" formulas had been transferred. And Mr. Chambers also confirmed that in the United States, this is currently all very legal.

Throughout the program, it was always the 35% US corporate tax rate that was stated as the main reason for the multi-national corporations to leave the US.

Now, what is fairly common business knowledge regarding the US corporate tax rate is that even though the published rate is 35%, the "effective" rate, or the average rate the corporations actually pay is a paltry 6.6%. Due to the large corporation´s tax accountants and the loop-holes that the lobbyists have been able to have added to the tax code over the past 30 years, this 6.6% is the average tax paid by US corporations. And giant corporations such as Exxon and General Electric, either annually pay zero taxes or they actually receive large tax returns for millions of tax-payer dollars.

During the whole 60 MNUTES program, this fact of the actual "paid" US corporate tax rate was not mentioned one time by either Ms. Stahl or any of her interviewees. (And one must remember that CBS television is owned and controlled by a large multinational corporation called Viacom.)

But the actual 6.6% average US "paid rate" was not the only issue that was not discussed as to why corporations have moved out of the US.

Of the main issues, depending on the type of corporation we are discussing, corporate tax rates have had almost nothing to do with why many of these companies have gone elsewhere.

If it´s a company that requires large quantities of skilled manual laborers, a company may want to move because they can find lower payroll costs and/or a country where the local government provides healthcare for all the workers. If lower costs are offered in both of these areas, that is definitely enough incentive for relocating a large factory. But that´s still not all of the reasons.

Another foreign country might also offer a long-term tax holiday incentive or free property for building the new factory. But again that´s still not all of the reasons that a factory may leave the US.

The other area that was not discussed on 60 MINUTES was the cost of the environmental requirements that the US might require for a new US factory and let´s not forget the human rights and child labor laws that the US requires for all its factory´s workers. This is a much bigger issue than that of a high corporate tax rate.

Yes, on paper, the US does really have the highest published corporate tax rate in the world.

But to go on record, that is not necessarily the main reason that multi-national companies and companies headquartered in the US are moving their "Headquarters" and factories outside of the United States.

Until our tax codes are cleaned up and the real rate then lowered to a competitive world rate, and until US business rules and the tax incentives for moving off-shore are updated or changed, the exodus of US corporations will continue.

Copyright G.Ater 2011

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