On Monday (May 4th) President Obama announced an initiative to reduce corporate tax loopholes.  He argued, these loopholes provide incentive for American businesses to establish operations on foreign soil. 

Watching MSNBC, I'm amazed at how little coverage this issue has received.  I'm still reeling from Fox New's loving embrace of the Bush administration, so I can't really comment on their coverage of the issue and CNN's 24-hour news format (i.e. recirculate the same days news collected once in the morning and once in the afternoon then played ad naseum all day with questionable "Breaking News" segments spattered throughout the day) works against intelligent news analysis, in my opinion.  I don't watch them either, so they may be all over this already.

Barack Obama's argument begins,

"Let's begin with a simple premise:  Nobody likes paying taxes, particularly in times of economic stress.  But most Americans meet their responsibilities because they understand that it's an obligation of citizenship, necessary to pay the costs of our common defense and our mutual well-being."

I still like Obama.  It doesn't matter how many times I hear people refer to him as: 'King Obama,' or 'Barack Hussein Obama': I like where his head is at and I support his efforts.  Sometimes I have to qualify that with 'I like where his head is at compared to U.S. presidents past' but such a qualification is still improvement. 

Barack Obama just seems like good people.  He begins generally at the beginning when he talks, or; at least, closer to the beginning than I've ever heard a president speak.  In this case, he started by explaining the idea of taxes in general before getting to his reasons for reform.  Many times today we want to jump past the basics and move right on to arguments built upon assumptions we no longer remember or just choose not to say. 

Take the example of a May 7th Wall Street Journal article titled "Obama's Global Tax Raid."

The online version of this article even skips the name of the person who wrote the opinion, so we must assume the Wall Street Journal now has an opinion independent of the people who write for the news organization.  According to this column, Obama's proposal is a "global tax raid."  It makes Obama sound sinister right from the headline.  From sinister the opinion piece jumps right into confusion and name calling. 

They state,

"The President's argument is that U.S. tax-deferral rules make it more expensive for American companies to reinvest overseas profits at home than abroad."

I've read Obama's statement and I didn't get that out of it.  I'm not sure where they got that, but I'm sure they can justify it, even though Obama's statement seemed pretty clear to me.  I won't proceed on this line any further except to say, if you know a bunch of people who this effects- you're probably doing pretty well and not exactly going hungry yourself. 

(I'm not exactly sure how to interpret "more expensive for American companies to reinvest overseas profits at home than abroad" anyway.) 

The Wall Street Journal's determination is: "This 'solution' is antigrowth, job-destroying, protectionist and unlikely to raise the tax revenue Mr. Obama predicts."

I do understand "job-destroying" and "unlikely to raise" tax revenue.  "Antigrowth" and "protectionist" sound bad.  I'm really not sure what those terms mean, but I'm scared.  I just get confused though when the Wall Street Journal article admits:

"Few major U.S. companies pay 35% of their profits in taxes because of the foreign tax-deferral and other deductions, credits and loopholes. But that's precisely why Mr. Obama should want to take the better path to corporate tax reform by reducing the rate and removing loopholes. America now has the worst of both worlds — a high statutory rate and a tax code so riddled with complexity that it is both expensive to administer and inefficient at collecting revenue."

I understand their premise, but their conclusion is lost in translation.  Apparently I need not be too concerned though because they admit, "Some of Mr. Obama's advisers understand all this."  That indicates some of Obama's advisers don't understand what the Wall Street Journal is trying to sell.  I'm pretty certain that a high percentage of Obama's advisers have post-graduate degrees, so they're considered 'smart' people and if some of them don't understand it I don't feel so bad (and neither should you.)

The Wall Street Journal concludes,

"Fewer companies will keep their headquarters in the U.S., especially small or mid-sized firms that can slip away without becoming a political target." 

I'm left to wonder, really? 

Isn't the U.S. one of the greatest countries in the planet?  These companies are going to leave all of this to live in India or Malaysia?  I'm not knocking those places, they've got a rich history and I'm sure wonderful people, however, changing the tax code will apparently lead to Americans placing themselves in self-exile for a lower tax rate.  Really?

There goes American businesses. 
There goes American jobs. 
There goes the American dream.

Reading these accounts, sounds like America is headed on a slow path to becoming Third World all because President Obama has suggested changing the tax code for corporate America.  These are dire circumstances which makes it all the more confusing that there's so little coverage of this news on corporate run television stations like MSNBC. 

In the past week I've seen: Swine Flu stories; analysis on Senator Spector's defection to the Democrat party; and commentary regarding Vice President Biden's remarks about keeping his family off of public transportation. 

Oh yeah, and is the Republican party still viable?

Are any of these stories as important as what the Wall Street Journal suggests is getting ready to happen to America?  In the absence of television reporting, it seems we're left to try to get to the bottom of this thing ourselves.  Either that or the story will simply blow away, running slowly beneath the radar of public discourse for lack of engagement by the responsible media. 

In an effort to get to the bottom of it, here's some more of President Obama's words from his May 4th announcement.  In his address, President Obama said:

"As most American citizens and businesses meet [tax] responsibilities, there are others who are shirking theirs. And many are aided and abetted by a broken tax system, written by well-connected lobbyists on behalf of well-heeled interests and individuals.  It's a tax code full of corporate loopholes that makes it perfectly legal for companies to avoid paying their fair share.  It's a tax code that makes it all too easy for a number — a small number of individuals and companies to abuse overseas tax havens to avoid paying any taxes at all.  And it's a tax code that says you should pay lower taxes if you create a job in Bangalore, India, than if you create one in Buffalo, New York."

Linking this back to his opening remarks, taxes are the way we as a country pay for common defense and mutual well-being.  With this in mind President Obama commented,

"For years, we've talked about shutting down overseas tax havens that let companies set up operations to avoid paying taxes in America.  That's what our budget will finally do.  On the campaign, I used to talk about the outrage of a building in the Cayman Islands that had over 12,000 business — businesses claim this building as their headquarters.  And I've said before, either this is the largest building in the world or the largest tax scam in the world."

Is it so hard to believe that corporations have been pilfering from the U.S. citizen to line their

own pockets?  It seems we are expected to believe that if Warren Buffett wanted to buy all of the tomatoes in America, build a fence around them in the poorest section of the poorest community in America, on land he purchased, to let them rot for everyone to see: that would be okay.  I'm not saying Warren Buffett would do it (I'm sure he's a great guy) but: Is that okay? 

If capitalism ruled our lives, it would have to be at least legal based on private property laws.  The proposal President Obama mentioned didn't seem like a big deal in light of having the legal right to rot all of the tomatoes in America you can afford to buy. 

"I'm asking Congress to pass some commonsense measures.  One of these measures would let the IRS know how much income Americans are generating in overseas accounts by requiring overseas banks to provide 1099s for their American clients, just like Americans have to do for their bank accounts here in this country.  If financial institutions won't cooperate with us, we will assume that they are sheltering money in tax havens, and act accordingly.  And to ensure that the IRS has the tools it needs to enforce our laws, we're seeking to hire nearly 800 more IRS agents to detect and pursue American tax evaders abroad."

This is against a culture in America which relies on incorporating itself.  It sounds rather benign, but how many people really know what that means?  The corporation becomes an entity of itself, behind which individual people make moves for which they don't have to take responsibility.  You can make defective products (like Hydroxy-Cut) and never have to personally suffer any consequences for your decision to sell it to people.

Shut down a liver.  Hush.  That's just making a buck baby.

Headline- "Business groups gear up to fight Obama tax crackdown"

"[Coca-Cola Inc.] could soon find itself in the cross-hairs of federal tax officials because of its subsidiaries in a few places — namely the Cayman Islands, Costa Rica and other countries known as havens from U.S. taxes."

One benefit of incorporating is paying lower taxes than as an individual.

Some may argue a corporation is being double taxed.  The corporation pays for its profits.  The individuals paid by the corporation get taxed again and then what about the poor people who own the corporation?  How are they to live in a world of such tax insanity?

The way the world is working with credit today, you really don't need cash in your hand to do things.  You just need to have access to cash to pay your bills off month by month.

"U.S. Sen. Saxby Chambliss (R-Ga.) said 'If you’re going to (have) a very complex piece of legislation that’s going to require double taxation on the part of domestic corporations, then what you’re going to see is jobs being shipped overseas.'”

I'm left to say, 'Really?'  I thought America was the greatest place on Earth.

"U.S. Rep. Tom Price (R-Ga.) of Roswell, said Obama’s tax plan 'would permanently ship away our competitiveness...While the president claims he wants to preserve American jobs, his plan will have the exact opposite effect.'”

What competitiveness do we have anymore?  America is a consumer market and that's why there's currently shock and concern because American's are pinching pennies.  For whatever reason, Americans are not spending and because American business is so consumer-dependent: businesses are suffering. 

And why is that?  I might suggest because we are no longer competitive.  Unless you're talking entertainment and then we've got the market locked.  Other than that we've got a lot of retail stores to sell you something.  We've got a lot of restaurants to sell and feed you. 

Movie theatres
Food courts
Indoor racing

It's some of the greatest things about America, but it's hard to sell to someone outside of your borders.  Not impossible but difficult.  If we're just selling to each other, where does more money come into the system.  Is that why we need credit so much, because no money is coming in from outside?  What do we have to export?  But really I'm sure that's not the problem.  The problem is far more complicated than I could probably figure out because I'm not an economist. 

I don't know their jargon.

J.D. Foster, Ph.D and Curtis S. Dubay at the Heritage Foundation conclude President Obama's proposals weaken America's global competitiveness.  They write:

"[Obama's proposal] would seriously damage the international competitiveness of U.S. businesses. The plan would: Limit the ability of American businesses to defer U.S. tax on their foreign income and Reduce the credit for foreign taxes paid. Both provisions would substantially raise taxes on U.S. businesses operating globally. Although intended to keep more jobs in the U.S., these proposals would cost Americans jobs and wages."

How many people do you know that are working in international business?  How many people do you know that own an international business?  Not intended as indictments, I'm just asking questions.

Dr. Foster and Dubay continue,

"The foreign tax credit and deferral are two critical features that prevent the U.S. corporate income tax from crippling the international competitiveness of U.S. companies."

An interesting thing about Googling "benefits of incorporating."  You find little nuggets like:

"Income Shifting- Income shifting is one of the greatest benefits of incorporating. Income shifting is the act of dividing income between a corporation and its shareholders in a way that lowers overall taxes. If you run a profitable, small business with shareholders in higher tax brackets, you stand to benefit the most from this practice."

"Corporations typically want to do business or collaborate with other corporations."

"Continuous life: a corporation, can survive its founders, provided it complies with ongoing state and federal paperwork and pays the annual filing fees."

It seems like there's a lot of benefits to having a corporation which kind of flout the norms of being a decent human being.  In fact, the corporation is not a human being.  It may be represented in courtroom as if it were a human being though. 

You incorporate so your name isn't in the news when kidneys fail. 
You incorporate to protect your money.  The money you made through your corporation. 
You incorporate so you can buy property as the corporation.  Then when you get in trouble, nobody can seek recompense by making you sell your home.  Murder someone and the house is in a corporation's name: victim's family gets nothing. 

Sorry toots. 
Thanks for playing.
Better luck next time.

Headline: "US tax policy won’t hurt us"

"International Trade and Industry minister Datuk Mustapa Mohamed told a press conference that the tax holidays enjoyed by MNCs [Multi-National Corporations] here were not the only considerations in their decisions to invest in the country.  'MNCs also take into account Malaysia’s stable political stability, investment climate and quality of the delivery service system when they make decisions to come over to invest,' he said."

Again, how many employees of MNCs do you know who have their permanent address in Malaysia?  I'm not saying they're not there.  I'm just asking a question.  I figure most CEO's of multinational corporations live in the U.S.  Maybe England or Japan, but I'm thinking these guys and gals don't have their family living in Malaysia.

They may have a vacation home, but that money is coming back to someone in the States 5 times out of 10.  That's the problem though.  The money is really not coming back to the States.  Or the United Kingdom.  Or even Japan.  That money just sits in a bank account somewhere.  Hidden from the IRS, because the corporation already worked out their deal with the host country for their operational cost.  In some cases, I'm sure they get kick backs for investing in a host country. 

The countries want the business of MNCs because it brings revenue, so they'll make it worth a corporations while to build.

Dirt cheap labor.
Sometimes less than ideal working environments that wouldn't pass inspection in the States.
You can train these foreign people in American culture, because they'll subject themselves to that kind of system over there just to get something to eat.  In the past, we called this kind of behavior colonialism.  Now we just don't have the guns to colonize.  Unless you count Afghanistan or Iraq.

At The Virginian-Pilot, they seem to agree with President Obama.  At least a little bit.

"The first part of the plan - cracking open secret bank accounts in Switzerland and other notorious safe havens for tax evaders - would generate $9 billion in a decade, according to White House officials...The second major component of Obama's tax plan isn't as clear-cut. Among other things, the administration wants to place limits on the ability of companies to defer paying taxes on profits earned by foreign subsidiaries.  More than 80 of America's 100 largest corporations take advantage of the setup, according to a study by the Government Accountability Office. The proposed change would bring $200 billion more in taxes, White House officials estimate."

In the wake of all this, I like where Obama is headed.  This topic needs to be discussed in America.  We don't think about how business is conducted often enough in our country and that's probably why banks in America don't have the money on their balance sheets when Stress Tests occur.  The system is built on a fallacy that most people have forgotten or just assume was solved.

The Hypothetical Quandary- If we're in a bubble and all we have is $100 between us and that's all the money there is, if I loan you my share—$50—at 10% interest: Where are you going to get the $5 to pay me back?

I like Schwarzenegger's idea too, but I wish he would be bolder.

Headline: "Schwarzenegger open to studying marijuana tax idea"

"Gov. Arnold Schwarzenegger says California should study other nations’ experiences in legalizing and taxing marijuana, although he is not supporting the idea...He says it’s time to debate proposals such as a bill introduced in the Legislature earlier this year that would treat marijuana like alcohol. Assemblyman Tom Ammiano, a San Francisco Democrat, says taxing marijuana at $50 per ounce would bring more than $1 billion a year to the state...Schwarzenegger said during a Tuesday news conference that “it’s time for debate” on the idea. But he warned against making harmful decisions just for the sake of raising money...He said some other nations have had negative experiences. Ammiano’s bill is on hold in the Legislature. He delayed seeking approval until next year."

Good thinking Arnold, now work what you know buddy.  Be bold.  Be Conan.  Be the Terminator.  Make them do it, it's brilliant.

And to quote Baron Von Raschke, "That is all the people need to know."