October 29, 2012 at 6:12 pm #605373
There has been a lot of talk about foreign investment in America, especially during this election season… some of it positive and some of it negative…
but there is one theme that keeps surfacing.. that investors.. especially foreign investors are waiting for the outcome of the election to decide whether to invest in America.
I find this puzzling… since current rules for foreign investment are very favorable right now and neither party has indicated any desire to roll them back.
I believe it was Bostonman who made a very interesting observation about the taxable basis of some foreign investments that i wish i could find because i have been thinking about it since i read it…
What i want to know is exactly why investors fear that retaining this President would impact their current ability to do business when it appears to me that the real impact of a change in administration would be a possible loosening of the rules to improve their ability to do business…
comments?October 29, 2012 at 7:41 pm #775506
It was I.
You are right that investment rules are favorable right now. I think it has more to do with the unknown. The unknown always scares investors more than anything because in these cases it’s change they can’t control. Unlike the stock market the investments my company deals with are typically held to maturity so they can’t go in and out of the investment.
Currently they can take certain legal measures to limit withholding rules under US Tax law. One of these investors is domiciled in the Netherlands and falls under the Netherlands-Antillies tax laws which are great. They are worried about investing because they fear the 30% mandatory witholding could become something they can’t avoid, even though they could set up the investment to avoid it under current law.
Basically, this is going way into corporate tax law and rules that honestly are even mostly above my head. I am not a lawyer but fortunatly the CEO is.
You are right that no one has indicated a desire to change the laws. There is a increasing desire from people to overhaul the tax code even though you haven’t heard it at the federal level. Change tax structures, capital gains rates, close loopholes, or whatever the case may be.
Also as a disclaimer no investor has indicated who they want to be in office before they invest. If I were playing devils advocate I would say either one could push the issue.October 30, 2012 at 4:48 am #775507
i personally believe the “great unknown” is a manufactured fear since it is not in anyone’s best interests to change most of the laws favorable to investment.
Yes, there is a lot of talk about streamlining the tax code..
kootch will gladly write you a monograph on a single tax rate.. for wage earners…
but is eerily silent when it comes to actually changing the tax code to affect businesses and investment income.
The tax breaks that are at risk right now are those that benefit middle and upper middle income taxpayers.. not those that affect business.
if i was an investor i would be cautious right now myself. Having seen the financial industry cannibalize itself, take the market down with them and learn nothing from the experience would be a sobering prospect indeed.October 31, 2012 at 7:22 am #775508
The cloud of uncertainty. I am fine Ms. JoB for a single corporate rate on net income. About 15% should do it. That would match Canada, Singapore, etc… oh.. but you want .. what was it 35%? You want to repeal the Bush tax cuts? Let’s do it then. I don’t hear one single Democrat asking for a full repeal of the Bush cuts..sequestration will do it. There are plenty of investments in the USA… and more coming. But they are going to southern states.. with right to work laws. No one in their right mind is locating to states like CA, Ill, WA… Airbus is underway with their new plant .. that is a huge investment…they wanted nothing to do with Washington State…in fact, the WA aerospace industry is now taking its first steps to exit the state. Mazda is talking about a new plant. BASF is expanding in SC and NC… but the world is changing.. the center mass of middle class consumers has shifted….it’s not here anymore.
I am not eerily silent… you should tax investment income at “zero” per cent… that was income that was already taxed once. You punish the responsible for doing the responsible thing. Ditto, estate taxes… those assets and estates were built with aftertax income… greed and envy do not make for a good solid tax system.October 31, 2012 at 12:32 pm #775509
“you should tax investment income at “zero” per cent… that was income that was already taxed once.”
show me the dollars flowing through our hands that have not already been taxed far more than once kootch…
and then tell me again why investment money should be taxed differently than any other money.
” I am fine Ms. JoB for a single corporate rate on net income. About 15% should do it. That would match Canada, Singapore, etc… oh.. but you want .. what was it 35%? “
show me the major corporation in America that pays even a 15% effective tax rate Kootch.
Go on.. i am sure if you really work at it you can find one.
I wish you had added to this discussion.
You could have done that you know
instead of just sounding off one more time…October 31, 2012 at 4:33 pm #775510
Very simple.. if we both 50K left over, after taxes… you blow it on a motorhome and I invest it… does that seem logical? You pay a sales tax with that discretionary income at best. Capital is what you are asking for… then saying those that do the capital formation should be taxed as their reward. ?? You don’t beat your dog after it learns to sit and shake… you reward it.
When investors see we have no federal budget, we lurch from continuing resolution to continuing resolution, our spending is 100 per cent of our GDP… when our path looks more like Greece and Spain than a disciplined, budget constrained government.. Remember when your theory on Greece was “there are lots of millionaires” .. to which I responded, no..capital was fleeing to safer shores.. who was right? Greece has no one and nothing left to tax. It’s gone.
Capital goes where it gets the best return. That is the start and the end of the issue.
You may have answered your own question. Show me a company that doesn’t have to wade through thousands upon thousands of [ages of tax code… keeping it simple is a plus. I can find thousands of them.. in fact, I showed you the effective tax rate of the evil oil companies… multiple times. A simplified tax code would be a good place to start. There are indeed loopholes after loopholes… and you want more. You want energy subsidies.. a loophole. Close them all. Long as the lobbyist welcome mat is out…October 31, 2012 at 5:23 pm #775511
if i buy a motorhome.. i pay a tax when i purchase it.
i pay taxes on maintenance costs and licenses and on gas to drive it
and if i sell it someone else pays tax on it..
end result.. every time money changes hands someone pays tax on it…
And you think when your money not only changes hands but grows you shouldn’t pay tax on that?
because you think you put the money to better use?
the end result of your capital is what?
if i buy a motor home the end result of my capital is likely to provide a home for someone.
your analogy kootch..
you really should choose more wisely.
and no. i didn’t answer my own question.
Those pages and pages of tax loopholes poor beleaguered companies have to wade through were created by their lobbyists
and pay off handsomely.
effective rates don’t make your point
but they are the real basis for comparison
Your talking points still don’t answer the original question.. what exactly do investors have to fear
other than another collapse triggered by reckless deregulation?
from where i sit, that is a very real fear
not a bunch of manufactured nonsense
defended by irrelevant talking pointsOctober 31, 2012 at 9:10 pm #775512
Yes.. the entire idea of capital is to finance business without incurring debt expense. The goods and services and wages that capital enables.. those are the taxable events. More than half of those deductions and exceptions are .. yours. Investors fear a deeply indebted nation with no recourse but to tax tax tax… take, take , take… that’s not an investment climate. The proof is right in front of you…… see where companies ARE investing then ask why.October 31, 2012 at 9:24 pm #775513
Look, Kootchman, I happen to agree with you about a flat tax rate. However, to exempt investment income is a HORRIBLE idea. All money made through any means is income. Period. Tax it all at the same rate. Then fix where the money is going to. We’ll be making plenty of cash to fund this great nation (probably already are) lets just spend it more wisely.October 31, 2012 at 10:43 pm #775514
….. see where companies ARE investing then ask why.
Ooooo! Ol’ Benny smoked stinky cee-gars! Just like Rush!
MikeNovember 1, 2012 at 12:52 am #775515
“The proof is right in front of you…… see where companies ARE investing then ask why. “
i don’t have to ask why. i know the tax code well enough to know that we are giving them the tax credits they lobbied for for doing so…
silly goose.. tricks is for kidsNovember 1, 2012 at 12:56 am #775516
kootch isn’t going to go for that…
not unless he can expense the beejeezus out of that income first and then shelter and exempt a little more before he gets to that flat tax…
he thinks what he earns from investments should be tax free…
because he was taxed on the money he invested…November 2, 2012 at 3:44 pm #775517
Bring the rate down to competitive levels… and the money comes back. Keep it in the 28% rate (Obama wish list) and watch it go bye bye. It’s that simple. Some or none.November 2, 2012 at 4:58 pm #775518
“show me the major corporation in America that pays even a 15% effective tax rate Kootch.”
JoB, I accept your challenge!
The Coca Cola company had an effective tax rate of 24.5% in 2011. See page 53:
The reason why Coke’s tax rate is so low is because Coke has so many international sales. The income in the U.S. is taxed at 35% federal and (on average) 5% state. The income in other countries is taxed at a lower rate – typically around 10 to 20 percent because other countries have lower corporate tax rates. When you blend those rates you get to the 24.5% When Coke repatriates the foreign profits, then it will pay U.S. tax at 35%, less the credit it will receive for the foreign taxes already paid.
Right now there is little incentive to repatriate because U.S. corporate tax rates are so high. So companies are leaving their profits in foreign countries (for now) waiting for U.S. corporate tax rates to drop to repatriate.
Corporate taxes are extremely complex because there are so many items with a timing difference. For example, last year a business could purchase a new machine for $100M and take an immediate tax deduction because of bonus depreciation. Meanwhile that machine will produce income for many years to come. So there is a mismatch between when the expense is deductible for tax and when the expense is recognized for financial purposes. This is only an extremely simple example. In reality it is far more complex. I’m not anywhere near being an expert despite spending about 30,000 hours (on the job) trying to interpret and apply tax laws to my employer’s business.November 2, 2012 at 5:35 pm #775519
What JoB does not understand is that money is not sitting still. It is being invested. It is the capital that the rest of the world is borrowing or using to invest in capital expansion and improvement.
She has seen this skeeter… she can’t let go of the “party line”… she knows, or should, that big oil is one of the highest taxed industries… but they persist. It’s so frustrating to liberals.. someone is making money they can’t tax. Worse, is the foreign companies that buy US assets.. they repatriate their earnings home… for more favorable tax treatment. The double whammy.November 2, 2012 at 6:47 pm #775520
Even then the foreign tax credit is limited. There is a nice calculation that is used to create it.November 2, 2012 at 8:06 pm #775521
NerdWallet shows taxes paid by top 500 US companies:
Click “Corporate Tax Rates” and drop-down select the company to show taxes paid.
Coke actually paid 3%, howevr Wal-Mart paid 19% taxes to the US govt in 2011.
Both reported higher. Coke reports 25% paid, while W-Mart reports 33%. Does anyone know, are they including the SSI & Medicare taxes paid?November 2, 2012 at 8:22 pm #775522
Meg, that is taxes paid in relation to total taxable income. Because of tax laws the true calculation should be on income earned in the US. Under that scenario you would get closer to Skeeter’s number.
If all cash was brought back into the US then that rate would be higher. I am trying to find out if it includes SSI and Medicare. My guess is no since this is federal tax liability. I am going to try and find the answer for sure.November 2, 2012 at 8:25 pm #775523
meg, good find.
Here’s the challenge with corporate income taxes. Both figures are probably correct. It depends on how you measure taxes. Effective tax rate includes (a) foreign taxes and (b) taxes on current year transactions that will be paid in the past or future but not in the current year.
In 2011, corporations were able to write off 100% of their asset acquisitions (bonus depreciation.) In 2012 they can write off 50%. Unless changed, bonus depreciation ends in 2012. So a whole lot of companies will be paying taxes associated with 2010 and 2011 in 2013. It’s just a timing difference. The “effective” tax rate is used to show what the taxes would have been without the timing adjustments. That makes financial results more comparable given the rapidly changing laws.
Check out Best Buy’s rate of 43% taxes. They must be on the “flip side” of timing adjustment.
SSI and Medicare taxes are definitely not included in income taxes – either using the effective rate or actual cash rate. Employer’s share of SSI and Medicare are overhead taxes, not income taxes. They appear on a different part of the tax return and financial statements.November 2, 2012 at 11:08 pm #775524
Oh kootch.. you amuse me.
i love your insinuations that poor befuddled little old lady JoB doesn’t understand economics..
I don’t know how to tell you this, but it’s really hard to earn much as an accountant unless you have a very good grasp of the basics …
If i had your ethics and was playing in your field i wouldn’t be whining about taxing overseas profits…
i would have already figured out how to manipulate the money you have “parked” overseas to filter it back into my US accounts without paying that excessive tax…
It’s not that I don’t know how to manipulate our income to avoid paying taxes kootch.. we choose not to.
There is a huge difference.
The funfest accounting you and Skeeter are indulging in is amusing… you have to accept some pretty heavy built in assumptions that validate my basic point to prove yours…
but hey.. it’s all in good fun, isn’t it?
the explanations redux only prove the point…
the actual rate for taxes paid is a fraction of that 35% rate that is bandied about…
and a fraction of that which is actually earned.
something most of the middle class working stiffs in America can’t fiddle…
Know what the last Republican we elected to the Presidency has been up to? You are gonna be so proud of him.
He was in the Cayman Islands speaking at a seminar on how to invest your money overseas and avoid paying US taxes…
Its good he is putting all that expertise of his to good use.. don’t you think?November 3, 2012 at 12:13 am #775525
Just to clarify, I wouldn’t say I’m “indulging” in the funfest. I personally don’t have any investments outside of the U.S. other than whatever funds my 401k is buying.
But it is correct that corporations are factoring in taxes when making business decisions about when and where to repatriate earnings.November 3, 2012 at 12:31 am #775526
oh thanks for so many clarifications skeeter. and bostonman, too.
I’m so lame in taxes, and little bits starting to make sense now-based what you said. I really have to learn more, not understanding how those numbers are derived has been bugging me for a while.
Please post what you find about SSI and medcare, are you thinking they are expenses then?November 3, 2012 at 12:43 am #775527
“Please post what you find about SSI and medcare, are you thinking they are expenses then? “
They are generally considered expenses..
as by the way are taxes themselves…
but whether they are added into the mix when calculating effective taxes depends upon how the framework for the analysis is set up…
and that depends upon which point the group doing the analysis is trying to make.
i have seen it done both ways.
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