It’s fashionable these days, especially in my industry, to style oneself as “socially liberal but fiscally conservative.” I might be one of the only hedge fund managers out there who claims the opposite. I tend to be to the right socially, but downright Krugman-esque when it comes to many fiscal issues. I’m passionately pro-immigration. I believe we should have government-funded healthcare. And I want more public spending on infrastructure and education.
I’ll also readily admit that wealthy individuals like me are under-taxed in this country. Businesses are another matter, though. Corporations are not people, and we shouldn’t be taxing them like they are.
Next week, Apple’s CEO Tim Cook is slated to testify in front of a Senate panel investigating how companies are keeping their money overseas. All told, American corporations are sitting on an estimated $1.7 trillion in offshore accounts. Apple alone is stashing $100 billion elsewhere. This has inspired a lot of political consternation lately, and demagoguery from the usual sources. That’s not surprising. Corporations are easy targets. But scolding executives isn’t going to bring that money home, and it’s not going to do a damn thing for our sputtering economy.
The U.S. corporate tax rate is either the highest or one of the highest in the world (depending on how you calculate the numbers). Apple is already scheduled to pay some $7 billion in federal taxes this year ($1 million an hour, according to Cook). Not only that, the IRS compels companies to “true up” taxes on any foreign revenues they bring into the country, forcing them to pay the difference between our inflated domestic rate and the rate they’ve already paid where the profits were made. That’s a bizarre and self-defeating policy, and expecting corporate leaders to go along with it is even more bizarre.
Most large companies make huge chunks of their revenues overseas now. More than 60 percent of Apple’s sales occur in other countries. And, as this chart shows, most of those other countries are cutting their already lower corporate tax rates:
Given this trend, why wouldn’t corporations keep their capital where it makes the best business sense to do so?
Unfortunately, a lot of American businesses aren’t just leaving their profits offshore now, they’re physically relocating their headquarters, as well. Oil drillers Transocean and Diamond Offshore left Houston for Switzerland, and last year industrial giant Eaton packed off to Dublin, Ireland. We don’t just lose out on tax revenue with these moves. We lose hundreds, even thousands of jobs. You know, jobs? The number one thing by a wide margin Americans want their leaders in Washington to focus on? These aren’t crappy jobs, either. These are good paying jobs, the kinds that give workers benefits and stability and–most important of all–dignity. Now, people in Switzerland and Ireland get to enjoy those things.
If our business-averse political leaders don’t wise up, this exodus is only going to continue. We might even see an All-American brand like Coke or Pepsi leave, or a household tech name like Cisco or maybe even Tim Cook’s Apple. As shocking as this idea sounds, it could happen sooner than later. I meet with dozens of corporate executives in Silicon Valley every year. They are all, to a person, completely fed up with our corporate tax policies, and the arrogant way politicians have been vilifying them. These are worldly, highly-educated people running successful, multinational corporations. They don’t want to leave the United States, but they would have no problem living abroad. Many of them already have at one point or another in their lives.
We should be doing everything we can to allow our corporations to bring their international profits home, and to spend the money they make domestically on growing their businesses. Sure, let’s tax CEOs and other top executives at a reasonable rate, but let’s also give them every incentive to reinvest their corporate profits directly into the economy, our economy.