There is a lot of talk today in the press and on the campaign trail about corporate taxes. Where America stacks up in the world as far as corporate tax rates and what strategies American companies employ to avoid them is big news these days. Why? Well…our national deficit is absolutely astounding, for one. The government needs money so badly. That is not new. Corporations in America are also feeling the pressure from globalization and increased competition as well as pressure from shareholders to maximize profits. So a smart tax strategy is a very important piece of American business strategy.
The biggest question is this: Do we really have high rates of corporate tax compared to the rest of the world - or is this just political rhetoric? According to Forbes:
“It’s a rock-solid fact that the U.S. corporate statutory tax rate is the highest among developed nations and is significantly higher than the average. According to 2014 data from the OECD, the combined federal and state statutory corporate tax rate for the United States is 39.1 percent. The average of the other 33 members of the OECD is 24.8 percent — 14.3 percentage points lower than the U.S. rate. Weighted by country GDP, the average for these 33 countries is 28.3 percent — 10.8 percentage points lower than the U.S. rate.”
I guess Forbes answers that question. The strategies to avoid or rather employ some company “tax planning” initiatives is always an interesting topic as well. Apple and Microsoft are the first to come to mind. Apple sets up subsidiaries around the world, namely in Ireland to sidestep American tax rates. They even have an office in Reno, Nevada, to assist in their California tax planning strategy. According to the New York Times:
“Apple’s headquarters are in Cupertino, Calif. By putting an office in Reno, just 200 miles away, to collect and invest the company’s profits, Apple sidesteps state income taxes on some of those gains.”
You may remember those epic Microsoft anti-trust battles when the government was trying to put the brakes on what it thought was a pure operating system monopoly. Microsoft has also had some interesting tax strategies that are well documented. Of course, many companies employ these tactics, as they are fully and completely legal. A Senate investigation found that Bill Gates’ behemoth reduced its 2011 federal tax bill by a whopping $2.43 billion — or 44 percent — by using a wide, international network of controlled foreign corporations and the exploitation of various loopholes in the U.S. corporate tax code.
What politician’s debate is whether this corporate tax structure is hurting or helping our country. Some argue that these taxes (when collected) help America with the funding it desperately needs, i.e., bridge building, social security funding, cruise missiles, etc. On the other hand, some argue that these taxes (when collected) stifle job creation and innovation. It is an interesting debate to be sure. What do you think?