2009 December 26 Saturday
American Corporations Leaving America
Some US corporations are reincorporating abroad.
It's easier than ever for corporations to move operations overseas. And if the federal government doesn't realize this soon, more and more companies may follow the example of Dallas-based Ensco International and reincorporate overseas. Ensco's decision, announced last month, subject to approval by the majority of its shareholders, is the latest in a series of moves by energy companies to leave the U.S. and relocate in Europe.
Switzerland and Ireland are popular destinations according to the article.
One big reason for bailing is taxes.
After Japan, America has the world's highest corporate-tax rate and Washington shows no willingness to bring those rates down. Indeed, President Obama's administration recently proposed taxing the foreign profits of U.S.-based multinationals even when those profits aren't repatriated.
The Obama administration takes for granted the machinery of wealth creation. It is just something they think they can harness toward their preferred ends. But wealth can skedaddle pretty rapidly in this era of cheap global communications, global travel, and global trade.
Incorporation in the United States has clearly become a political risk. The US government is deeply in debt and running huge deficits for years into the future. With such sick finances the federal government is capable of all sorts of desperate damaging grabs for money. Corporations are better off minimizing their risks by shifting as much as possible outside of US jurisdiction.
I would treat this article with some skepticism.
From the linked article:
" Executives now worry about the future threats associated with excessive (and rising) government activism and a hostile business culture"
Companies are relocating to Ireland, a member of the EU, because it doesn't want "government activism". Who would describe the EU as an oasis of limited government?
"Such populist government meddling in our financial sector is sure to drive talent offshore. In fact, Deutsche Bank CEO Josef Ackerman recently commented, We can't wait to get our hands on all that top talent."
The US government has given the financial sector trillions of dollars in the last two years. No one should describe these actions as populist. The US would probably be better off if all the "talent" that has lost massive amounts of money would leave.
The point about world wide income being taxable does have some merit.
The foreign earnings of US companies are already taxable when they are repatriated, and as such the trend predates Obama. During the Bush administration Dresser industries reincorporated overseas, and Ingersall-Rand did the same thing, incorporating in Bermuda.
"It is just something they think they can harness toward their preferred ends. But wealth can skedaddle pretty rapidly in this era of cheap global communications, global travel, and global trade."
Well, one could provoke a trade war to eliminate the latter two threats. I say do it because it would paralyze capital. Randall, do you see any barriers for protected domestic companies taking over after they leave? Maybe countries should backlash and put tariffs on all products that are from corporations "from" tax havens although it is hard to do so since the define of from is hard to rigourosly define due to complex supply chains. That would be very popular legislation for most countries.
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