We agree. We both agree this stuff is over our heads (and I’m saying that as someone who has worked overseas for a multi-national corporation and managed a practice for one of the top 4 tax accounting firms in the world!), and we both agree labor rates are what drive most labor overseas. And, I agree with what you write about how corporations set up divisions, etc. is based in part on local taxes. For similar reasons many, many U.S. corporations are headquartered in Delaware or Nevada, even if they do no work there.

I greatly admire what your friend does, by the way. Process Engineers are very cool folks to hang out with. They tend to be talented at cutting to the core of most issues.

I also don’t pretend to understand all of it, but the crux of it is that high tax rates raise the overall cost of doing business, so that moving aspects of the business to developing world to exploit cheaper labor rates make the relative overall cost cheaper for those segments, even as the taxes maybe higher, relative to the US. That is, labor costs are so cheap, that even with higher taxes, it’s still cheaper to be business there. However, if we reduced our tax rates, the advantage of overall cost would shift back to the US in many of those cases.

And yes, a VAT tax in many first world countries does many their taxes higher, in comparison to ours, but lowering our corporate income tax rate would make us more competitive than we already are with other first world countries.

I understand the labor rates, as I stated earlier, but what does that have to do with corporate tax rates?

Tax law is extremely complex. A Fortune 100 company may have hundreds of employees AND high paid consultants focused solely on their taxes. I won’t pretend to understand it all, not a single one of those hundreds of employees or consultants do, and they do it 40+ hours a week, 50 weeks a year, but I don’t see how moving work overseas gets a company out of paying income taxes on its earnings. You pay taxes on where you earn the money. Unless 3M has figured out a way to get more people in Congo or Zaire to buy post-it notes than folks in the U.S. they’ll pay taxes on the profits from those post-it notes. Actually, if they make the post-it notes in Congo where labor rates are low, low, low they’ll pay even more taxes because there is more profit.

Again, this is all very complex, but from what I know V.A.T. taxes in most other 1st world countries more than outweigh the U.S. corporate taxes. And, unless 3M is literally moving its corporate headquarters overseas I’m not sure how they avoid paying U.S. corporate taxes. They are, a U.S. corporation. It’s true the tax guys and gals come up with a lot of schemes to beat the tax code, and some of that involves registering certain facilities in certain principalities, but from what I know the bulk of movement overseas is due to lower labor rates. That’s a much greater factor than taxes.

An interesting, tangential to this conversation, states have started charging high paid athletes for the income earned in their state. Kobe Bryant earns about 23 million a year. If the Lakers play an 80 game schedule and he plays 4 games in Cleveland he’s earned a little over 1 million dollars in Ohio. If the tax rate in Ohio is 6% Ohio wants $60,000 from Kobe!

He’s told me much of what he’s heard from higher rungs up the ladder about how corporate investments have been going. He’s informed me that a lot business leaves our shores because of those high tax rates, where labor rates in poorer countries make the relative cost cheaper.

What are you basing this statement on? “The reason why jobs have left American shores is that we have the second highest corporate income tax rate in the world” I’m not doubting the second part, but I am questioning whether that’s the reason for jobs going overseas. I would think labor rates would be the greatest contributor. Also, most countries I know of have a value added tax, and those typically end up tacking on more taxes than the U.S.’s corporate income tax. (Phew, that’s a lot of tackses and taxes. We need to have Chico take upa the tacks first so he can take upa the carpet. You know Chico, he’s got’ta Uncle lives in Texas.)

I’m not arguing with the statement, for all I know it’s right, I’m just wondering if you have a reference so I could see a break-down of U.S. corporate taxes vs. foreign.

The reason why jobs have left American shores is that we have the second highest corporate income tax rate in the world. That rate of taxation makes it cheaper to do business in places like India and China, when it would be cheaper to do it here if we reduced the tax rate. I find this video to be a great distillation of the point.

How does a corporation maximize profits? Simple, you charge more for your product, or, according to Marxist philosophy, you pay your workers less. Whether a person stays in a lower-paying job or whether consumers will pay more for a product will adjust accordingly to supply and demand.

With an increased tax base from the consumption tax, then the government could reduce the tax rate on corporations as another option.

It really won’t matter in the end. The big, bad government will want its money and will take it from either the consumer with a higher consumption tax rate or from the corporations by taxing their profit.

Which makes it a hidden tax on individuals, and if your goal is to maximize how much to take from people without their realizing it, then you want it as big as possible.

I agree that eliminating withholding would push some of this into the daylight. Right now Congress is like a thief in the night. Eliminating withholding would help, but it doesn’t address the fundamental issue that taxing productivity is an abomination. Addressing withholding is kind of like a politician in the 1850s arguing treating slaves as 4/5 of a person is better than treating them as 3/5 of a person. Yeah, I guess so, but allowing slavery in any form is the problem.

It is a signal advantage of taxes on articles of consumption, that they contain in their own nature a security against excess…If duties are too high they lessen the consumption—the collection is eluded; and the product to the treasury is not so great as when they are confined within proper and moderate bounds. This forms a complete barrier against any material oppression of the citizens, by taxes of this class, and is itself a natural limitation of the power of imposing them.

The disadvantage I’ve encountered in proposing it is a ubiquitous misunderstanding that it would be a tax in addition to other taxes. I believe the common experience and understanding of sales tax being a supplemental form of revenue leads to this misunderstanding. In contrast, a flat tax–”back of the postcard” tax–is very easy to understand and receives very positive feedback from the outset. In addition, many countries pursuing free market reforms have moved to a flat tax, as opposed to a consumption, for their main form of revenue. In fact, our own income tax started with a flat tax, with a four page tax code. Now, it’s 46,000 pages, with 16,000 pages of IRS rulings.