Maybe it’s not so much a question of “will we,” but should we have any major corporations left in the United States come the start of the next decade? I’m speaking of corporations headquartered in the country, that is. Richard Lee recently weighed in on some of the inversions we are seeing at the moment – more in his article On Corporate Inversion regarding the AbbVie and Shire deal here.
Jason commented on Spend Management and Corporate Taxation several years ago, in the context of an ill-conceived corporate gross receipts tax idea floated in Illinois by the now infamous former Gov. Rod Blagojevich (currently a federal prison inmate). The idea would have chased companies like Caterpillar, John Deere, AT Kearney, Accenture and many others out of Illinois practically overnight.
I have written several times on this and similar topics – here is a piece on Our Ineffective National Industrial Policy: Employer Taxes, Unions, and a Lesson for Procurement, which critiques hostility to businesses in general, the crippling influence of labor unions and bureaucrats and the adverse impact from minimum wage laws on rural economies, while asking for a sensible pro-business (aka employer) policy from Congress and the White House.
Another piece of mine, Initial Impressions and Exploring the Procurement/Tax Equation, commented on a report from PricewaterhouseCoopers, which described “how sourcing and procurement decisions can significantly impact corporate taxes paid and improve the bigger balance sheet in a major way,” specifically by understanding “fully the impact of transfer pricing in the sourcing process,” as well as “using operating entities located overseas, in locales with lower corporate tax rates than in the U.S (which means ANY other country in the world these days).”
Even Warren Buffett, who is great at picking and grooming successful businesses has no choice but hold the hand of Adam Smith, even if it takes him to Canada - in the current case of Burger King which is attracting so much press. This is ironic since Buffett has expressed such strong redistribution preferences (he spoke to my year at Yale’s business school) that he sounded indistinguishable from Olof Palme (leader of the Social Democrat Party in Sweden before I migrated) for those who remember him.
With that as a backdrop, you can see why the inversions you currently see in media are merely the tip of the iceberg. Fundamentally, I think it is practically a violation of your fiduciary agent responsibilities to continue to keep headquarters and key business functions on U.S. soil. Meaning that you - as an executive of a corporation - need to protect your investors from the negative results of operating in a highly-taxed, highly-regulated jurisdiction.
Any firm, operating in multiple countries other than the United States, clearly stands to benefit by relocating headquarters overseas, transferring (particularly new) intellectual property assets to the new parent company, and sending key staff to locations with more reasonable taxation levels. The last part includes not only design, R&D, and engineering, but also supply chain leadership such as procurement and strategic sourcing. The point of the relocation of the operational functions is to support more aggressive transfer pricing to, and royalty arrangements away from, the U.S.
Remarkably, we now find ourselves in an environment where it is advisable, even urgently so, to go offshore – not just for the manufacturing base, but also for mid-management and executive value-add functions.
If you think this is a second coming of expat opportunities – well, even that cripples U.S. companies (versus the rest of the world) as U.S. citizens (and permanent residents) are subjected to income tax on worldwide earnings. Along with not using the metric system, the U.S. is the only first-world country to cling to this policy. Worldwide earnings taxation goes against all logic – since when you live overseas, you’re not consuming any U.S. resources, while you are paying your way (often via national sales taxes) where you live.
Ending with a depressing recommendation, but any new Graduate should be told look overseas, whether they go into plastics or any other profession. It would be hard to come up with a legal and bureaucratic framework that is less conducive to corporate and individual success than what we have in the U.S. right now. And I don’t see it getting any better.
See you in Singapore, Hong Kong, Ireland, Switzerland – or even Canada!