In about 45 days you and all other investors will have, or should have, received all of those thick year-end reports from their investment firms or advisors and their IRS Forms 1099 for tax reporting. You should take a good look at what the taxes you have paid on those corporate earnings from within those funds or directly from any direct stock holdings. It is no secret that the US has the highest corporate income tax rates in the member states of the Organization of Economic Cooperation and Development (OECD). So, in short, US companies are already behind in dealing with our trading partners and a lot of people in our government like it that way.
With the very public discussions on both side of the political spectrum, calls for corporate tax reform have been heard loud and clear; both to simplify our massive and un-workable tax code (pick up a copy and give it a read if you think I’m wrong here!) but also to bring the US in parity with the tax rates our trading partners and international competitors.
US corporations have been accused of being “unpatriotic” for converting or “inverting” into foreign corporations in order to pay lower income taxes, even though that was refuted many years ago by Judge Learned Hand of the 2nd Circuit Court of Appeals and has never been overturned by the US Supreme Court or Congress. But, there is also a larger but ignored issue and that is the corporation’s fiduciary duty to its shareholders and their money invested.
But, then there is “Liz”; Senator Elizabeth Warren (D. Mass.) who has pounced on this seemingly obvious issue. At her appearance at the National Press Club in November she stated that the strategy of “giant corporations” is to “tell a story about high US taxes, demand tax cuts from the US Congress, and threaten to leave the US for good if they don’t get what they want. I say it is time to call their bluff.” She further stated that the problem with the US Tax Code is not that “taxes are far too high” but that “the revenues generated from corporate taxes is far too low”. She also stated that “Right now US companies can pay a lower rate by investing overseas instead of in the US”. Isn’t that the point “Liz”
As for “calling their bluff”, US Treasury Secretary Jack Lew reported that he didn’t think he had enough time to conduct a formal rule-making to stop the flood of companies going forward with tax inversions (which would be in both their best interests and of their shareholders as a fiduciary duty).
BYRON RAMBO, MBA, EA