Privilege

By John Lumbard, CFA …

“Swiss cantons are free to set their own tax rates. For example in Zug, corporate tax is about 16 percent but can fall as low as 9.5 percent for companies that do most of their business outside Switzerland. That compares with an average global corporate tax rate of 25.9 percent.”

—  Reuters

Switzerland is stealing our lunch money! A firestorm of criticism stopped Walgreen’s from moving its headquarters to this alpine paradise;  but Tyco International, Noble Corp, Transocean, and Foster Wheeler are already there.  Houston’s Weatherford  Int’l was there, but it just moved from Switzerland to Ireland to get an even better deal.

Chiquita Banana and Perrigo are also moving to Ireland. Applied Materials is moving to The Netherlands, and Abbvie has moved to England. Warren Buffett is going to help Burger King move to Canada!  These “corporate deserters” are not moving to the Cayman Islands, but to some of the world’s wealthiest and most-admired countries.  Instead of bashing corporations for disloyalty, we should worry that we’ve created such an inhospitable environment that we’re forcefully pushing them— over-regulated and over-taxed—out the door.

Actually, this sounds a heck of a lot like the bidding wars that break out among our states as they try to get Hollywood fat cats to make Major Motion Pictures within their borders. California certainly isn’t taking this lying down;  Jerry Brown and the Golden-haired legislature have just agreed to shower $330 million a year on movie moguls to keep them out of the clutches of New York and New Mexico.

California, of course, is the state that just raised its taxes to the highest in the nation, saying that tax revenue would go up because hardly anyone would leave. Now they’re paying rich people to stay . . .

The same thing is happening at the federal level, where we have corporations that pay nothing in tax, and more than a few that pay the highest tax rates in the developed world. Instead of a simple and fair system, we set tax rates at levels that drive corporations away—and then give special deals to those who are politically connected.  Yes, GE pays very little, but Exxon and Chevron always pay taxes at a 40% rate.  Thumbing through Value Line you’ll see hundreds of companies that pay taxes at rates that are far above the 25.9% average quoted at the top of this story.

The simple truth is that states and nations have to compete to attract the investment that creates jobs and wealth. In this new world of globalization they have to compete for employers, innovators, brilliant immigrants, and the wealthy;  but that competition should be fought without offering special deals to anyone.  The media are raging about the wealth of one-percenters like Kareem Abdul-Jabbar, but are shockingly silent about the privileges—a glaring inequality—that are accorded to those who are politically connected.  Why is there a special tax rate for George Soros, Tom Steyer, and other hedge fund managers, and a special rate for private-equity tycoons?

The tax system is the foundation for corruption in American politics.

 

 

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