Silicon Docks And Our Unmoored Tax Policy

Yes, the wealthy and extremely wealthy should pay a little more tax than the less fortunate. But no, corporations should not be heavily taxed. Of the many loony aspects of our tax system, this may be the most counter-productive.

First, corporations just pass any tax bill on to customers for their products and services, so it’s really a hidden tax on all of us. It doesn’t especially impact the wealthy, which some people who equate corporations with their highly paid executives seem to believe.
Despite what the Supreme Court believes, corporations aren’t people so you can’t hurt them by taxing them silly. But you can hurt the country doing the taxing.

Warren Buffett has said that no one ever declined s chance to make money because they might later have to pay part of the proceeds in taxes. Corporations, like people, will try to minimize their tax bite. In fact they’ve got a duty to shareholders to not spend money they don’t have to. But corporations, unlike people, have no ties of love and duty, patriotism and history to one jurisdiction or another, So if a country offers a far lower tax bite but is roughy equal in terms of workforce, raw materials, logistics, access to markets, why pay more?

We have stupidly created a tax regimen that gives our most competitive companies incentives to do more and more of their business elsewhere in order to reduce their tax bite. And once money is earned abroad, we make it expensive to repatriate profits so it is reinvested there, not here. More jobs for other nationals, less for Americans.

Case in point, the so-called Silicon Docks of Dublin, their attempt to grow a silicon valley-like engine of growth. It is booming with over 10,000 jobs in a country of 5 million people. In a country our size that would be the equivalent of 600,000 jobs. Some are in home grown start-ups, but 70 percent are not. They are IBM (3,000), Google (2,500), Facebook (550), LinkedIn (450), Amazon (300) and so on.

In the Dublin airport a recorded announcement encourages departing travelers who know anyone with an expanding business to tell them it pays to locate in Ireland. Trinity College is collaborating with businesses to train the workers they need.

Of course, many businesses don’t need workers. They open Potemkin subsidiaries solely to take advantage of the corporate equivalent of the Cayman Islands, a place to shelter money from the tax collector. It Is easy to damn them as weasels, but Congress has created the short sighted tax system that gives businesses an incentive to move jobs and keep profits abroad. Thus, businesses benefit but this country and its citizens are the losers.

Don’t take it from me. Here are some conclusions of a study by The Tax Policy Center, a joint venture of The Urban Institute and The Brookings Institution: “The current U.S. system of international taxation has four significant flaws: it provides artificial tax incentives for firms to locate real economic activity and report profits in low-tax countries; it places U.S.-headquartered firms at a competitive disadvantage; it is unworkably complex; and it raises relatively little revenue, even though the U.S. corporate tax rate exceeds that in most other advanced industrial countries.” Other than that, it is working perfectly.

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