The politics of tech's tax breaks

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Depending on the company, the line disclosing that deduction was sometimes buried in financial filings, far removed from any mention of income taxes, which drew criticism from watchdog groups. Controversial financial accounting standards rules that took effect last summer should change that.

America's sky-high corporate taxes
Another favorite practice, however, has drawn more widespread outcry from corporate watchdogs and a handful of politicians. It involves shifting company assets to foreign countries with more favorable tax regimes.

Microsoft, Oracle, Google and Apple are among the companies that have arguably managed to reduce their tax payments--in some cases substantially--by setting up subsidiaries in Ireland, where the corporate income tax rate is only 12.5 percent.

A BusinessWeek Online article last month described how Apple made a similar move domestically, setting up a company in Nevada to avoid dealing with tax-happy California. (An Apple representative confirmed the existence of a regional treasury office in Reno but said that otherwise, "We don't go beyond" the contents of public filings.)

Of the financial statements analyzed by CNET News.com, Google's appeared to be the only one that overtly acknowledged the impact of its Irish subsidiary on its tax payments.

"We currently anticipate that our effective tax rate will decrease to approximately 30 percent in 2005 from 39 percent in 2004, primarily because we expect that our Irish subsidiary will recognize proportionately more of our earnings in 2005 as compared to 2004," Google wrote in its latest annual report. Others acknowledged obliquely that their effective tax rate in the United States would likely be reduced because of earnings taxed at lower rates in foreign jurisdictions.

This should come as no surprise, say free-market groups who have long said that the U.S. corporate income tax rate is simply too high. (They view tax competition as a healthy way to keep business environments welcoming and not too oppressive.)

"It scares away investment and it encourages companies, Enron the most infamous, to go through these complicated machinations to try to shift their profits out of the United States," said Chris Edwards, director of tax policy studies at the free-market Cato Institute.

The first step? A corporate rate cut across the board, ideally followed by a complete eradication of the corporate income tax, Edwards said.

Technology companies have made a similar plea. In a letter sent late last year to U.S. Treasury Secretary John Snow (click here for PDF), the ITAA called for reducing the federal corporate income tax rate to 25 percent.

Economists generally agree that lower taxes foster business investment. Ireland's economy is booming after its corporate income tax rate was sliced to 12.5 percent. Former Eastern bloc republics like Georgia, Russia and Ukraine have lower corporate income taxes than those of the United States, which a 2002 KPMG study said were the fourth-highest in the world.

"The problem with corporate taxes is that they're disguised ways of taxing individuals," said Fred Smith, president of the Competitive Enterprise Institute, which advocates lower taxes. Corporate income taxes mean "higher prices, lower wages, or reduced dividends, all of which affect a lot of people who aren't wealthy," he said.

The topic recently arose at a Senate hearing on global competitiveness, where Intel Chairman Barrett urged Congress to rethink the corporate income tax rate. He blamed "the relatively high degree of taxation of U.S. corporate revenues in the U.S., compared to the tax concessions (of) foreign governments" for discouraging new investment in manufacturing plants on American soil.

ITAA selected its recommendation of 25 percent because, when combined with the average state tax rate, it would be in line with the 29 percent average recorded across the 30 countries that belong to the Organization for Economic Cooperation and Development--a kind of think tank funded by developed nations. Right now the U.S. rate of 39.3 percent, which factors in the state average rate, is the highest among OECD members, the letter said.

"They'd be happy with zero," said ITAA's Childs. "But I think we're trying to introduce a standard of reasonableness that will be politically viable."

[Pop4]

Retirment communities and pork barrel school funding policies?

As the renouned John F. Long was carted off to Dell Web Medical's out-patient facility for a prescription and a check up(circa 1970); their were more "Baby Boomers' wrangling their last dime to invest in Superior Development. Now known as the grandfather extention of tulips in 'the field of dreams'.

[kaisdaddy]

The supposition...

...that somehow public schools are going to aid in keeping us as
a nation competitive is a joke! Public schools get more money
than most private schools and do a fantastic job of wasting the
money in the administrative process and producing
underachieving students who can't spell or do basic math.

Of course, the kids coming out of public schools can tell you
exactly what their rights are and why the government should
have more power to tax and regulate "evil" corporations.

The tax breaks for tech companies are bad in my opinion, but
not because it takes money away from public schools. Tax
breaks are always bad, because they are just another form of
government coercion. I don't want the tax code used to make
people do things the government likes and punishes people for
doing things the government doesn't like.

If there is a market for the products of tech companies, then
they will set up shop and produce naturally. If the government
would just stay out of it and not regulate businesses to death,
we would see far more new business startups, with the job
creation and benefits to the community that go along with it.

[Jim Harmon]

Coersion

I have no agrument that spending on schools doesn't necessarily result in better education.

Where my opinion differs is on the whole tax break concept. These companies are going to do business somewhere. If not in your town then someone else's. The way things are going, quite possibly even in another country.

Besides, the whole concept of government IS "coersion." Every law and every ordinance is written to coerce people to behave in the manner that the lawmakers wish. The only difference here is that they're "buying" compliance.

[Frankwrite]

$1 billion difference? I doubt it.

"Right now it costs an average of $1 billion more to open a leading-edge manufacturing facility in the U.S. versus other countries," said Jennifer Greeson, an Intel spokeswoman. "The biggest difference isn't labor or construction costs, it's taxes."

What makes up that average? What other countries? It would be cheaper for Intel to build a plant in Germany or Japan than in the U.S.? Or is Ms. Greeson including countries where Intel would never choose to locate a plant, despite the difference in taxes, because other factors preclude considering that country?

In an otherwise balanced and excellent article, Intel's statement stands conspicuously as a fat target for challenge by the writers.

[shawnlin]

Negative Tax & Free Trade Zones....

Governments in Taiwan, Singapore, Korea, and China often offer negative tax, locations in "free trade zones" (no import tax), and lax environmental regulations. Other perks often include zero or negative personal income tax, relocation expense subsidy, and free tuition for their kids at the exclusive private international schools (that offers diplomas and curriculums equal to and accredited by American/British/Canadian/French/Japanese governments) that are usually worth 10000~20000 USD per kid per year, to expat senior executives working at these local operations.

So one billion difference sounds a bit at the low end for high profile investments.

[Ipod Apple]

Intel's statement stands conspicuously fat

http://www.analogstereo.com/toyota_paseo_owners_manual.htm

[qazwiz]

The facts disprove the storys angle

first: the angle of the story is trying to blame corporations for the poor school performance.

next: it assumes more money will result in more graduates with higher test scores.

while: it ignores the ecconomics of both worlds

I remember hearing (reading, maybe even here) that the school system with the most dollars per student has one of the lowest scores one the standardized tests. this alone blows the story as false and inept

how do the "spelling bee" and "geography test" contestants fare in a check of their schooling? (I remember a couple years back hearing that nine of the top ten "spelling bee" contestants had been HOME SCHOOLED and I believe there are significant similarities to the "National Geograpic Geography quiz" contestants)

pick a national contest based on school subjects, then evaluate the top winners with all winners by type of schooling and the $$$ per student spent in their school district and the teacher/student ratio.

I bet you will find that billion dollar computer studios take a back seat to individulized study taylored on a per student basis in an enviroment that is conducive to study... i.e. no gang activity, respect of teachers, and one subject per year being designed by the student to grab his attention in his chosen field... music, computers, whatever.. but designed to include the major subjects.. reports and math usage (music is VERY mathamatical) and others including public speaking

then we will be able to compete in the accademic arena again

[fakespam]

Former Student

During the 1990s, when I went to school, I absored much of the
subjects shown to me.

Whent the early Internet came about in 1992, I totally absored
that! I started memorizing and studying subjects that I gave a
damn about, and learned much along the way. Even when I think
I've forgotten something, like trig or calc, I see a formula and/or
equation and can spout off the answer or correct process by
which to achieve the answer. In public school it drove my
teachers nuts, and the kept throwing me into basic math classes
at the beginning of every year, only to be moved to AP Math
when the basic teachers got around to talking to me. I never
believed the way math it taught, that the process by which the
problem is solved is more important than the answer thereof.
*** is that? When I see a math problem, I do the answer. If, as a
part-time programmer (for fun) I were to simply do the process
of the code, I'd never have the final result of the coding, ergo,
no program to use in the end.

So, I'm competed in those spelling and geography bees. I usually
just bowed out at the beginning, even though I won every year
on the school's behalf. Whoopee. When, in English classes, I was
always accused of plagurizing because my research, thanks to
the Internet and early AOL, was always better than the average
student. I got hell. Finally, I just took a course where I showed
up for about two to three periods a day and did the rest of the
classes at my own pace at home. When the school held a student
of the month competition, I won every time by the sheer amount
of work I turned in. Still, I was bored. Then, out of nowhere, the
school said my credits were too high and no fair to the other
students, and took away half of them. To hell with that, I went to
get my GED and enrolled in community college, then various
universities since. Business, History and Economics are my
majors with too many minors to give a damn about. Now, it's
nightschool to finish up to my Masters and Doctorate.

Let's face it: public schools suck. Kids go to school to screw,
socialize, deal drugs, whatever. They don't go to learn. This
writer of the posting (not the article) touches on that.

When you forced something on somebody, expect them to
perform less, because it's against their will.

PS It's BS college really means anything, when almost every
manager I deal with in a drop-out or ex-Service Man, making a
nice income. (Not rich, though some are.)

[qazwiz]

The facts disprove the storys angle

first: the angle of the story is trying to blame corporations for the poor school performance.

next: it assumes more money will result in more graduates with higher test scores.

while: it ignores the ecconomics of both worlds

I remember hearing (reading, maybe even here) that the school system with the most dollars per student has one of the lowest scores one the standardized tests. this alone blows the story as false and inept

how do the "spelling bee" and "geography test" contestants fare in a check of their schooling? (I remember a couple years back hearing that nine of the top ten "spelling bee" contestants had been HOME SCHOOLED and I believe there are significant similarities to the "National Geograpic Geography quiz" contestants)

pick a national contest based on school subjects, then evaluate the top winners with all winners by type of schooling and the $$$ per student spent in their school district and the teacher/student ratio.

I bet you will find that billion dollar computer studios take a back seat to individulized study taylored on a per student basis in an enviroment that is conducive to study... i.e. no gang activity, respect of teachers, and one subject per year being designed by the student to grab his attention in his chosen field... music, computers, whatever.. but designed to include the major subjects.. reports and math usage (music is VERY mathamatical) and others including public speaking

then we will be able to compete in the accademic arena again

[shawnlin]

Eliminate Corporate Income Taxes...

... and apply mandatory across the board wage increases for all US employees.

No matter now you change the tax codes, multinational companies will be able to get away with large amounts of taxes through the use of offshore shell companies. It is much harder for individuals to do that.

So perhaps its easier not to tax companies and force them to pay their employees, who won't be able to get away with taxes as easily, more.

[fakespam]

Supply and Demand

No, no "across the board" wage increases. Let those who earn
the right to more money get more money.

Since companies can't be trusted, enforced the min. wage, but I
feel, after a certain amount of accountability promoted to
something, salary and comission come into play.

After all, nobody trusts a used car salesman anymore that a
short-order cook.

And don't tax the employees, because they're the consumers
you need to buy your goods. If they're taxed, less to spend. Less
to spend, company earnes less.

[swear word], taxes, no matter where it falls, will affect and
effect everybody.

[fakespam]

Common Sense

A primitive tech company of sorts, William R. Hearst's newspaper
empire crumbled when Comrade Roosevelt illegally enforced
income tax on all corporations.

Before income tax was enforced, most of the revenue for the
Feds and local govs came from a very high tariff on foriegn
goods. It worked for over 100 years, till some Comrade of a
President created Socialism to employee people during the
Depression. In retrospec, the companies were actually on a
rebound in 1932, before being forced to pay an income tax.
Once Roosevelt got into office and re-wrote the 16th
Amendment's original provisitions, the economy slipped further
into the Depression. The result was economic collapse in places
like Germany and Italy, and you should know the rest of this
story.

Nobody is totally free of taxes, but the current tax structure
makes about as much sense as eating dirt for dinner. Do as they
do in Hong Kong. Lazy-Fair (don't know real spelling, but those
who study economics or business know what I'm getting at)
governance of business creates robust economies and healthy
companies.

I say, then, let's abandon taxes, raise the tariff on anything not
grown in the US or made in the 50 states and PR (exluded the
Northern Mariana Islands in this, because of the totally corrupt
status of gov over there).

As for things like roads and education . . . let the religions
handle education, let the roads become like a utility, so forth
and so on. Nowhere in the Constution is it stated that any gov.
in any capacity is allowed to make roads, run schools, hospitals,
so forth and so on. To do so is un- American and Soviet in
nature. Can anybody tell me why I need a license and pay
property tax? Because the Marxist thought say every I do it a
privlidge at their choice. Strange, the Constitution says nothing
about licenses and in Article 18 forbids direct taxation of the
citizen. Hmmm . . .

Thomas Jefferson said something along the lines if the
Constitution directly forbids it, it can't be done, and if it's not in
the Constitution it can't be done.

Give tech, and other industries, all of the tax breaks they want.
To hell with things like public indoctrination institutions . . . I
meant, schools.

My kids are fine at a Catholic school, and after 8th grade, home
schooling for them.