Corporate Taxes, Economics and Smart People

The Washington Post is a fine newspaper than sometimes lets it liberal leanings shade the real truth in a story.  This week it published an article designed to make us take umbrage at America’s corporate giants.  Being both intelligent and introspective I saw the story in a different, larger, brighter light. 

Proctor and Gamble is one of the finest and most laudable companies I know.   Ever since William Proctor (a chandler) and James Gamble (a soap maker) became a team (literally at the altar, they married sisters), P&G has been a reliable brand and an American success story.  They are leaders, innovators, and constantly generous to education.  In 1969 Proctor and Gamble’s federal taxes were about 40% of its total profits.  Today, as a global company, its federal taxes in this country are down to about 15%.  This represents a movement of sales, jobs and facilities overseas.  It turns out that most of the 30 companies listed on the Dow Jones Industrial Average have done the same. 

So what is the Post’s problem?  Frankly, I don’t think there is one.  First of all, these companies doing nothing illegal.   When these companies move capital to another country they obey the tax laws of that nation, just as they obey the tax laws of this country.  Our corporate laws accommodate this potentially doubled tax burden by doing what they have always done, delaying taxation of profits made overseas until that money is brought back to this country.  Many of these economic machinations are in response to the United States uniquely high top corporate tax rate of 35% (which, while down from a whooping top rate of 48% in 1971, is still high for industrial counties).  

As the world becomes metaphorically smaller, it is easier for multinational companies to move capital around.  [By the way, here is your daily lesson in economics:  capital does not mean money.  It means physical property: buildings, equipment, furniture, all the stuff required to produce a product.]  When companies move capital from place to place they are building plants, employing people, and generally improving the lot of the country they are in. 

            There may be as much as $1.7 trillion in overseas income that moves from country to country seeking the lowest possible tax rate.  Some people would look at this and become angry in a fit of, “them” vs. “us” mentality.  But before you start anointing yourself with righteous indignation, try looking at the situation on a more personal scale. 

            I was born in Minnesota (top income tax rate 7.85%), grew up in Colorado (top rate 4.63%) and lived my adult life in Missouri (6%).  As a retiree I moved to Texas where there is no state income tax.  I have lessened my tax burden, increased my buying power, and maximized my economic independence by voting with my feet.  Why condemn a company, responsible for thousands of employees and shareholders, for doing the same thing?

            Additionally, I never turned down a pay raise, a promotion, or offer of employee benefit.  You can’t complain about a company doing the same thing you would and have done every time the opportunity arose.  It is called, “acting in our self interest” and it is a reliable judge of future behavior.  There is also a valuable lesson here for our government.  If you want to see more corporate money being earned and taxed in this country, make it a corporate friendly environment.  Decisions are made on a balance scale.   The good and bad are weighed, the scale doesn’t lie. 

            Learn a little about economics and keep the faith.