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Posts Tagged ‘Obama Administration’

US Tax Code Driving Employers Overseas

In Job Creation on August 29, 2012 at 10:26 am

Europe as tax haven?  It is true for some companies.  Certain nations such as the United Kingdom, Switzerland and Ireland are more attractive than the United States for corporate taxes.  Big name companies are reincorporating, moving headquarters from places like Chicago to London, which is exactly what Chicago-bred AON is doing.  Employers fear the Byzantine, high marginal tax rate code will worsen in 2013 and beyond.  Wall Street Journal articles today and in recent months discuss the problem.

“More big U.S. companies are reincorporating abroad despite a 2004 federal law that sought to curb the practice. One big reason: Taxes.

 

Companies cite various reasons for moving, including expanding their operations and their geographic reach. But tax bills remain a primary concern. A few cite worries that U.S. taxes will rise in the future, especially if Washington revamps the tax code next year to shrink the federal budget deficit….

 

The moves by Ensco and Rowan, which operate offshore oil rigs, show how one company’s effort to lower its tax rate can spur other shifts.

 

In moving from Dallas to the U.K. in 2009, Ensco followed rivals such as Transocean Ltd., Noble Corp. and Weatherford International Ltd. that had relocated outside the U.S. The company said the move would help it achieve “a tax rate comparable to that of some of Ensco’s global competitors.”

 

In fact, Ensco’s tax rate has declined. In the second quarter, the company said its “effective tax rate” was 10.5%, down from 19% in 2009. The savings: more than $100 million a year.

 

Around the time of Ensco’s move, Rowan executives fielded questions from investors and analysts about their own tax rate. In February, Rowan answered the questions, announcing plans to move to the U.K. from Houston. “We’re able to be competitive, with a low effective rate,” says Suzanne Spera, the firm’s director of investor relations. [1]

The off-shore moves include not only mature companies but IPO’s and even start-ups.

“When Austin, Texas-based Freescale Semiconductor Holdings, Ltd. went public last month in the U.S., the company followed the footsteps of generations of American high-tech companies… But unlike its predecessors, Freescale wasn’t going public as a U.S. company. As part of a private-equity buyout that took the chip maker private in 2006, it became a Bermuda incorporated company, according to securities filings. Freescale retained its incorporation in Bermuda, a tax haven, as the company returned to public trading.

 

As savvy investors and entrepreneurs search for ways to minimize the impact of the U.S. tax system, with its relatively high rates and global reach, they are increasingly incorporating overseas, tax experts say….”

 

 “U.S. start-ups are even beginning life offshore.”[2]

The Obama Administration supports making the US Tax Code even less friendly by extending taxation to overseas profits which are not yet repatriated (“tax deferral”).  Virtually no developed nations tax overseas profits.

Terming deferral “very, very important” to multinationals’ competitiveness, IBM Chief Executive Sam Palmisano questioned Mr. Obama about the issue during a televised meeting in mid-March. [3]
 
I think many on the American political Left do not look at tax issues as a matter of optimizing American business success, which leads to more jobs, or even maximizing tax revenues.  I fear they instead see corporate taxes as an issue of “fairness”, a subjective desire to increase taxes on so-called “big corporations”.  In reality, corporations will do what they need to do to be competitive in the global economy, which increasingly means moving to Switzerland or the United Kingdom.

[1] http://online.wsj.com/article/SB10000872396390444230504577615232602107536.html?mod=WSJ_hppMIDDLENexttoWhatsNewsSecond

 
Picture of Aon Center, Chicago, USA, former HQ site, and London, UK, new HQ, from Wikipedia Commons.

Auto Bailout Loss at $25.1 Billion

In Government Bailouts, Obama Administration on August 14, 2012 at 12:34 am

The Detroit News reported today the cumulative taxpayer loss on the auto bailouts is at $25.1 billion, as of May 31, 2012. [1]

[1] http://www.detroitnews.com/article/20120813/AUTO01/208130392?fb_action_ids=10151019535577424&fb_action_types=og.recommends&fb_source=other_multiline&action_object_map=%7B%2210151019535577424%22%3A10151353260369937%7D&action_type_map=%7B%2210151019535577424%22%3A%22og.recommends%22%7D&action_ref_map=%5B%5D

Washington Picks Losers & Subsidizes Chinese Solar Panel Makers With Your Money

In American Recovery & Reinvestment Act (Stimulus), Government Spending, Obama Administration, Uncategorized on August 2, 2012 at 8:29 pm

The Solyndra scandal is back in the news after today’s Washington Post article,

As the Obama administration moved last year to bail out Solyndra, the embattled flagship of the president’s initiative to promote alternative energy, a White House budget analyst calculated that millions of taxpayer dollars might be saved by cutting the government’s losses, shuttering the company immediately and selling its assets, according to a congressional investigation.

Even so, senior officials in the White House’s Office of Management and Budget did not discourage the Energy Department from proceeding with its plan to restructure a federal loan to Solyndra— a move that put private investors ahead of taxpayers for repayment if the company closed, [1] 

It is not just Solyndra.  Several articles help us take the big view about what a disaster government energy “investments” are:

Like the mythical monster Hydra—who grew two heads every time Hercules cut one off—President Obama, in both his State of the Union address and his new budget, has defiantly doubled down on his brand of industrial policy, the usually ill-advised attempt by governments to promote particular industries, companies and technologies at the expense of broad, evenhanded competition.

Despite his record of picking losers—witness the failed “clean energy” projects Solyndra, Ener1 and Beacon Power—Mr. Obama appears determined to continue pushing his brew of federal spending, regulations, mandates, special waivers, loan guarantees, subsidies and tax breaks for companies he deems worthy.

Favoring key constituencies with taxpayer money appeals to politicians, who can claim to be helping the overall economy, but it usually does far more harm than good. It crowds out valuable competing investment efforts financed by private investors, and it warps decisions by bureaucratic diktats susceptible to political cronyism. Former Obama adviser Larry Summers echoed most economists’ view when he warned the administration against federal loan guarantees to Solyndra, writing in a 2009 email that “the government is a crappy venture capitalist.”

Even under optimistic projections, heavily subsidized wind and solar would each amount to a tiny fraction of global energy by 2030 and thus cannot be the main answer to energy-security or environmental problems… Mr. Obama is spending immense sums for subsidies to particular industries and technologies, almost $40 billion for clean-energy programs alone (some, appropriately, for pre-competitive generic technology). [2]

As T.J. Rodgers, CEO of Cypress Semiconductor, writes, industrial policy can have unintended effects. 

Consider the current 30% federal solar energy subsidy. A home solar system with 60 solar panels produces about 15,000 watts of power, enough to completely offset the $6,000 annual electricity bill of a typical upscale California home. The system costs about $90,000 prior to the 30% federal income-tax credit, which reduces its cost to $63,000. After a simple payback period of about 10 years, the homeowner literally enjoys free electricity for the remainder of the guaranteed 20-year system life, a very profitable 10 years.

But what if that $27,000 tax credit, the accelerated-depreciation tax savings, and most of the hefty post-payback profits went to Wall Street firms with a “tax appetite,” not the homeowner? That’s just what happens with the majority of new home solar-system installations today.

Today, most new home solar systems are purchased by special Limited Liability Corporations (LLCs) that are specifically created by Wall Street firms to purchase home solar systems and to sell power to the homeowner on a cell-phone-like contract. The homeowner does not mind giving up the tax benefits as long as the “free” system reduces utility bills.

However, when the system is paid off and the monthly LLC profit jumps to 100% of the electricity bill, the LLC solar electricity price to the homeowner is maintained just below market—and the profit really begins to roll into the LLC. Since the risks to the LLC grow as the solar systems age, many banks offload their risk by selling the LLCs before their 20-year lifetime is up, locking in much of the long-term profit. There is now a growing market for what might be called “solar-backed securities.” Wall Street understands the time-value of money; the federal government and consumers do not.

One of the largest solar-system installers in the U.S., SolarCity Corp., uses the LLC strategy and currently buys a majority of its solar panels from the low-cost Chinese supplier, Yingli. Thus when President Obama said that we must subsidize our solar industry to remain competitive with the Chinese, it would have been more accurate to say that we subsidize Wall Street to create employee-less corporations that buy and install Chinese solar panels in the U.S. Wall Street and consumers understand that free markets are borderless; Washington does not.

Just last week, the U.S. International Trade Commission found the Chinese solar industry guilty of “dumping” solar panels in the U.S. Tariffs are likely to be levied against Yingli and others. Here then, is a practical guide to the Obama administration’s nonsensical solar policy: Washington gives tax breaks to Wall Street to fund LLCs that buy solar panels from the Chinese to “help” the American solar industry, while the ITC threatens to levy a tariff on those solar panels, which would raise the price of solar energy to U.S. homeowners. In short, Wall Street pockets the money and consumers get higher solar-energy prices. [3]

[1] http://www.washingtonpost.com/national/white-house-budget-analysts-thought-saving-solyndra-could-be-expensive-move/2012/08/01/gJQAf2QGQX_story.html

[2] http://online.wsj.com/article/SB10001424052970204883304577221630318169656.html

[3] http://online.wsj.com/article/SB10001424052970204903804577082631863392956.html

Picture from Wikipedia Commons.

Tax Code and ObamaCare Credits So Complex, Many Firms Won’t Use Them

In Uncategorized on August 2, 2012 at 7:47 pm

Image

ObamaCare includes various tax increases and some tax credits.  Part of the expressed aim of the bill in to induce some mid-size employers to offer health insurance through tax credits, funded by tax increases on others.

One obvious flaw with the thinking is the tax code is already mind-numbingly complex.  The linked Wall Street Journal article is about many companies not even taking advantage of existing tax laws.  The rules are complex, taking a credit may invite an IRS audit and many tax breaks require copious time and paperwork.  I predict many employers will do the same with the ObamaCare bill’s credits, as they look at costs and benefits and then factor in the complexity of the credits and related IRS audit flags and hassle.

In the Washington, DC vacuum that allows a President to think “the private sector is doing fine” or entrepreneurs “didn’t build” their businesses, no one presumably thinks about the actual businesspeople who have to live with these laws.  If pols did, they’d think twice about yet more tax rules.

“One example of the tough-to-take breaks is the federal Work Opportunity credit. It was designed to reward companies for hiring workers from several disadvantaged groups, including welfare and food stamp recipients, youths seeking summer jobs and ex-felons. The break typically lowers a company’s taxes by up to $2,400 per employee. For businesses hiring unemployed veterans, it can be worth as much as $9,600 per worker.

 

The credit frequently goes unclaimed, largely because it is such a hassle. It requires extensive paperwork for each worker for whom it is claimed and the paperwork can often take a year or more to process. Sarah Hamersma, a University of Florida professor, estimates that companies claim the credit for just 20% to 35% of all eligible workers.

 

J.J. Pledger, chief financial officer for the Twisted Root gourmet burger chain in the Dallas-Fort Worth area, said he spent the better part of a day last year trying to figure out how his company could obtain the credit. Mr. Pledger, a CPA, knew the credit likely would be available for a number of his company’s 200 or so annual hires. But the more he read, “it seemed like the documentation of the tax credit could be really hard to administer,” he recalled. One concern was all the personal information needed from job applicants. “So I put it on the back burner…. It seemed too daunting.” [1]

[1] article is free, no paywall.  http://online.wsj.com/article/SB10000872396390444025204577543060812237798.html

$26 Billion Failed To Stop Housing Market Decline

In Economy, Housing Bubble, Obama Administration, Tax Breaks on November 13, 2011 at 12:23 am

I recommend a Marketwatch story, http://www.marketwatch.com/story/the-great-26-billion-real-estate-swindle-2011-11-08 , which follows up on the home purchase tax credit “Stimulus” programs of the Obama Administration.

We are reminded about the $8,000 tax credits that were mailed out to home buyers in 2009 and 2010.  Using recent zillow.com data, we see most of these home buyers are worse off, even with the credit, because of the continued slide in home values.  That is sobering: the government spent $26 billion on home buyer subsidies and the average qualifying buyer made a losing bet even with the government money.  The average home dropped by more than $14,500 since the time of the tax credit, which more than offsets the $8,000 tax credit.  Needless to say, the taxpayer is worse off, too.

The graph below demonstrates this.  The tax credits helped cause a temporary halt of the decline in 2009 as home prices briefly increased.  Then home values went back to their decline after the credit ended in June 2010.  The real estate market had not yet cleared.  All that government money only delayed the inevitable, actually extending the housing recession by pushing back the time when housing would hit its trough. 

 

 

Graph from Wikipedia Commons, retrieved 11/12/11, http://en.wikipedia.org/wiki/File:Median_and_Average_Sales_Prices_of_New_Homes_Sold_in_the_US_1963-2010_Monthly.png

Picture from Wikipedia Commons.

Ford Anti-Bailout Commercial Censored By Obama Administration

In Economy, Ford Motor Company, Freedom of Speech, Government Bailouts, Obama Administration on September 28, 2011 at 10:23 pm

Despite Constitutional protection for freedom of speech, the Obama Administration pressured the Ford Motor Company to pull a video ad.   This demonstrates exactly why the government should never, ever own private companies; the temptation is too great for the government to pressure and handicap competitors (e.g. Ford) of the companies owned by the government (e.g. Chrysler and GM).

I do not care what justification the Obama Administration uses for pressuring Ford.  There is no justification because the federal government should never be favoring one company over another.  Washington should not be interfering in the advertising choices of a privately owned company.

The actual facts make this even more distributing.  The ad series features Ford customers who make unscripted remarks about why they buy Ford. [1]    Daniel Howes of the Detroit News reports, “a guy named ‘Chris’ says he ‘wasn’t going to buy another car that was bailed out by our government.’  Ford pulled the ad after individuals inside the White House questioned whether the copy was publicly denigrating the controversial bailout policy.”

In the ad, Chris says, “I was going to buy from a manufacturer that’s standing on their own: win, lose, or draw. That’s what America is about is taking the chance to succeed and understanding when you fail that you gotta’ pick yourself up and go back to work.” 

It is wholly inconsistent with economic freedom and American capitalism for any White House to pressure a private company to pull its advertisement because the government doesn’t like the way it portrays another company.  

Ford Drive One Ad

[1] “The unscripted ad, filmed in a mock “press conference” format, featured an F-150 owner named Chris who supported Ford” in http://www.thecarconnection.com/news/1066619_ford-yanks-tv-ad-critical-of-bailouts

 [2]  http://www.detnews.com/article/20110927/OPINION03/109270322/Howes–Ford-pulls-its-ad-on-bailouts

Mercury In The Air: Bad; Mercury In Your Home: Good?

In CFL Bulbs, Obama Administration on August 30, 2011 at 12:21 am

 The Obama Administration is working at cross-purposes.

On one hand, the Wall Street Journal reports the Obama EPA is “pushing an unprecedented rewrite of air-pollution rules in an attempt to shut down a large portion of the coal-powered fleet.”  About 8% of the nation’s electricity production could be shut down in order to combat mercury emissions.  [1]

On the other hand, the same Obama Administration supports new rules mandating CFL bulbs in the home.  The . [2]

This means literally billions of CFLs in American homes and apartment buildings.  CFLs contain 3-5 mg. of mercury vapor.  Because mercury is poisonous, a broken bulb is a concern.  Waste-haulers and landfills will receive CFL bulbs, many of which will break in the trash.  [3] 

Thus, the Administration’s message seems to be:  mercury in the air from a power plant?  Bad.  Mercury in the air of your home from a broken CFL bulb?  A necessary sacrifice in the name of reduced electric consumption.  We see federal subsidies to encourage CFLs even as limiting coal power plants will drive up power costs.  If we keep “government out of our bedrooms” for, ahem, certain purposes, why would we want the government to decide our bedroom lighting choices?

[1] http://online.wsj.com/article/SB10001424053111903327904576524423674218998.html?KEYWORDS=epa+moratorium

[3] http://en.wikipedia.org/wiki/Compact_fluorescent_lamp

[2] http://en.wikipedia.org/wiki/Phase_out_of_incandescent_light_bulbs#Federal_legislation