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30 August 2014

When an American Multinational Company Moves Its Headquarters Abroad It Is Patriotic

Unlike Obama, I do not measure patriotism in terms of the amount of taxes paid to and the amount of paperwork prepared for an over-weaning government that uses its revenues and its ever mounting debt to suppress our individual rights.  No, I look at the issue of American multinational companies moving their domicile to other nations with lower internal taxes and which do not tax earnings in the U.S. as a very real act of patriotism. This is fully consistent with the American Principle of limited government whose only purpose is the protection of our equal, sovereign individual rights.  It is very patriotic to punish a malfeasant big government with a decrease in tax revenues.  The lower its revenues, the less mischief it can perform.  This includes a reduction in its anti-business agenda.

In most cases, changing a company's domicile does not actually mean it moves its headquarters.  This is usually very like the case in which hundreds of thousands of U.S. companies are incorporated in the state of Delaware, but have their actual headquarters in a different state.  The location of domicile is chosen for tax and legal reasons and does not imply that any or most of a company's activities will be at the location of domicile.

The federal tax rate on U.S. corporations is 35% and it applies that highest in the developed world rate to all profits made in the U.S. and to any profits a U.S. multinational corporation makes abroad.  So a U.S. multinational corporation pays the nation in which its profit is made the lower tax they levy on corporate taxes.  Then if the U.S. corporation decides to bring that profit back to the U.S. to invest it here in R&D, new facilities, new hires, or new manufacturing operations, the corporation has to pay the difference between the rate charged by the nation in which the profit was made and the higher U.S. tax rate of 35%.  This drastically reduces the amount of profits earned abroad which are brought back to the U.S.  This plays a big role in slowing down the growth of the U.S. economy, which means it slows down the growth in our standard of living.

U.S. multinational companies which do not bring back their profits from abroad also greatly reduce the burden of producing the tons of paperwork in the form of reports demanded by the IRS.  This is a very great reduction of expenses and consequently a boost to profits earned abroad relative to those earned in the uphill battle at home.

To be sure, U.S. corporations do not generally pay the full 35% tax rate on profits earned in the U.S.  There are many exemptions, tax credits, and deductions, though these come at the expense of the added paperwork to claim them.  Nonetheless, the average percentage paid on profits by American companies is about 30%, while their rivals headquartered in other countries pay an average of about 23% on their profits.  Consequently, American companies are paying about 30% more taxes on their profits than are foreign companies.  This is a very sizable competitive disadvantage.

The Burger King acquisition of Tim Horton's, a Canadian company, is a case given much attention in the news lately.  Moving the Burger King domicile to Canada, a nation with more economic freedom than the sorry present U.S., reduces its corporate income tax rate to 15%!  Canada will only tax the profit made in Canada and will not tax Burger King on its profits made in the U.S. or in any of the other many nations it operates in around the world.  This will actually allow Burger King to bring the profits it has made in those many nations back to the U.S. for investment here, because the U.S. government can no longer tax these profits made by a Canadian company.

It is essential that every American multinational company put as much pressure on the far too voracious American government to reduce its taxes on productive work and to reduce its power to coerce people in violation of their rights to earn a living and to generally pursue their happiness.  A great and patriotic way to do this is to move their headquarters abroad.  If that has the eventual effect of forcing the far too big and nasty federal government to lower its tax rates and to decrease its incredible paperwork burden, it will do much to allow Americans a future with a decent increase in our standard of living coupled with a much improved environment of economic freedoms.

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