Being from Indiana, and wanting to understand a bit more about Indiana State finances in this extremely tough economy, where so many Indiana citizens, as well as many citizens across the country, are suffering so much economically, I decided to perform some research on Indiana’s largest Corporation, Eli Lilly.
In a sense of full and fair disclosure, Indiana’s Governor, Mitch Daniels, is Republican. He worked for Eli Lilly from 1990 to 2001. In his stint with Lilly, Daniels was promoted to President of North American Operations in 1993-1997, and he was also promoted again to Senior Vice President for Corporate Strategy and Policy in 1997-2001….a very fast rising star at giant Big Pharma Lilly.
All of the key top Indiana State government officials are Republicans. The Indiana State Senate is also dominated by Republicans. In the Indiana State House, the Democrats have a very slight edge….52 to 48.
Here’s what I discovered from my research of Lilly.
All Hoosiers are aware of how successful Indy-based Big Pharma Multinational Corp Eli Lilly has been. Over the past dozen years, Lilly has generated an amazing $37.0 bil of total worldwide consolidated pretax income.
What many Hoosiers probably aren’t aware of is how Lilly has fared in helping Indiana solve its State budget crisis….well, not so well. In these same past dozen years, how much has Lilly paid in total corporate state income tax? Well, in eight of those twelve years, Lilly paid nothing in state corporate income tax, instead it got corporate state income tax refunds.
And when you combine all twelve years, the total state income tax Lilly has paid nets to a negative $15 mil. Or in other words, Lilly has gotten total state income tax refunds of $15 mil in the same twelve year period that it earned $37.0 bil in pretax income. Indiana has to be the bulk of these total net state income tax refunds, since Lilly’s US operations are so heavy in Indiana.
So what is a fair amount of State Corporate Income Tax for Lilly to have paid on this $37.0 bil of worldwide consolidated pretax income? Well, without researching the Indiana corporate tax rate for each year, if I just use the current Indiana corporate income tax rate of a flat 8.5%, and multiply it by the $37.0 bil earned by Lilly in the past twelve years, I get an unbelievable $3,145,000,000…yeah, that’s $3.1 bil….and that’s just for one Indiana large Corp.
To balance the Indiana State budget, instead of wisely correcting this massive State of Indiana corporate tax loophole problem, the Indiana State Government has instead decided to lay off all of these state employees, including many educators, and they have also raised tuition of Indiana’s public universities, and they have also squeezed the costs out of so many excellent State programs.. Give me a break! That makes no sense.
With some of those $3.145 bil of additional State funds, Indiana could do some really great things like giving very healthy tax incentives to small and medium-sized Indiana businesses in order to bring down the horribly high Indiana State Unemployment Rate, like reducing tuition at State Universities, like sprucing up both K-12 and higher public education even more with wise initiatives, like investing even more in our already strong, but clearly overstressed police and fire departments, like making some wise green energy investments, like reducing property and sales taxes, like reducing the State individual income tax rates, like reducing the 8.5% corporate state income tax rate, and still having enough left over to significantly enhance the State’s Rainy Day Fund.
I really can’t understand how the State of Indiana thinks that in balancing its budget, it is permissible to cut all of these key state jobs, like ones in the critical area of education, instead of closing all of these State Corporate Tax Loopholes that let’s big corporations like Lilly get off Scot-free, where at the same time, so many Indiana citizens are suffering so severely economically. That's just not right, and Indiana citizens have every right to be outraged.
When you think of all the state services provided to Lilly, to its Board of Directors, to its executives, and to all of its employees, like education, state protection, and many other key services, you have to wonder why Lilly thinks it is perfectly OK to not have to pay any corporate state income taxes to the State of Indiana for these very valuable services it has received. And it’s not just Lilly. Many large Multinational Corps all over the country are following Lilly’s state corporate income tax avoidance footsteps here.
From an extensive review of Lilly’s past SEC annual report filings, on the very positive side, here is Lilly’s worldwide consolidated pretax income by year, for the past dozen years:
All in millions of dollars
2009…..5,358
2008….(1,308)
2007…..3,877
2006…..3,418
2005…..2,718
2004…..2,942
2003…..3.262
2002…..3,458
2001…..3,507
2000…..3,859
1999…..3,245
1998…..2,665
Total….37,001 (yeah, that $37 bil)
And then on the really negative side, here Lilly’s total corporate state income tax paid (received) in each year, for the last dozen years, from its SEC income tax footnotes:
All in millions of dollars:
2009…..49
2008….(45)
2007…..28
2006….(25)
2005…..12
2004….(11)
2003…...(6)
2002….(13)
2001…..17
2000…..(7)
1999…..(5)
1998…..(9)
Total….(15) (yeah, that’s a net state tax refund of $15 mil)
So, how do we correct this massive problem?
I think the single most important thing to do is remove the Big Corp too friendly Republican dominance in both the State of Indiana executive and legislative branches of government. They are letting large Corps like Lilly get away with bloody murder.
The Indiana Governor spot is not up for election in November 2010. Thus, for quick maximum effect, what single office needs to switch from Republican to Democratic control to best close these State Corporate Tax Loopholes enjoyed by Big Multinational Corps? Clearly, it's Pete Buttigieg replacing Richard Mourdock as Indiana State Treasurer.
Buttigieg is uniquely very financially astute. This guy studied Economics for three years as a Rhodes Scholar in Oxford, England. The only other Rhodes Scholar in Indiana is Republican US Senator Richard Lugar, and look how incredibly effective he has been in the US Senate for so many years, particularly in foreign affairs. And like Buttigieg, Lugar also studied Economics at Oxford.
To deal with very complicated financial matters, like closing very involved State Corporate Tax Income Loopholes, you need people in office who can keep up intellectually with the very brilliant, greedy financial minds of Big Corps and their also very financially savvy lobbyists….Pete Buttigieg is your man here. The State of Indiana is presently no match for the financial savvy of Big Corps operating here. When you study this issue in depth like I have, it is pretty clear that the State of Indiana has been very far behind the curve on closing inappropriate State Corporate Tax Loopholes. Many other states have been very successful in this endeavor, and these states’ finances have improved dramatically from these efforts.
To further strengthen the State’s weak hand in dealing with financial matters like the problem of Big Multinational State Corp tax loopholes, it would be really helpful if the State substantially beefed up its financial oversight by also electing Democrat Sam Locke as State Auditor. It also amazes me how incredibly inaccurate the projections of Indiana State Tax Revenues have been for many years, both in good times and bad times. Much wiser decisions will result if these State tax revenue projections can be substantially improved. I think Sam Locke can really help here.
So that’s a brief insight on Indiana’s State finances. Given my incredible findings on Lilly, I decided to expand my research from Lilly to the 30 Dow stocks to see just how pandemic this State Corporate Tax Loophole problem is.
Of the 30 Dow companies, from income tax footnotes in SEC filings, I was able to find 28 of them that disclosed either their state income tax paid in each year, or a combination of state income tax and local income tax paid in each year.
The two that didn’t give this key state tax paid breakout were JNJ and AT&T. The JNJ decision not to provide this disclosure seemed really strange to me, given that JNJ has a SEC State Location in New Jersey, which presently has a huge 9.0% state corporate income tax rate.
Anyway, below here is the effective state corporate income tax paid rates for the last six years in total for these 28 Dow companies. These effective state tax rates paid are computed by dividing the current state tax paid by the consolidated pretax income. Some pundits might call this a Race to the Bottom, or which Dow companies can pay the less state taxes. Well, it looks like Dupont won this Race to the Bottom, but it was a blanket finish, with an amazing 12 of the 28 Dow companies paying an effective state tax rate below 1.00%.
…………………….....Current………………….......State
…………………….......State...Consolidated…Effective
…………………….......Tax……….Pretax………....Tax
…………………….......Paid……..Income………..Rate
……………….….......(Millions of Dollars)
Home Depot………..1,862…….40,694……..4.58%
Verizon……………...2,804…….66,606……..4.21%
JP Morgan Chase…2,968…….79,226……..3.75%
Bank of America….3,952….107,073……..3.69%
Disney…………….....1,247…....33,958……..3.67%
Cisco Systems……..1,546….....52,493…….2.95%
Kraft………………….....654……..22,540…….2.90%
Walmart……………..3,298…....115,945…….2.84%
McDonalds…………....638….....27,258…….2.34%
Merck……………......1,033……..50,304…….2.05%
American Express….523……...25,523…….2.05%
Pfizer……………….....1,121……..67,030…….1.67%
Procter & Gamble…1,157……...81,449…….1.42%
Chevron……………...2,435…….171,583…….1.42%
Coca Cola………….......523………43,861…….1.19%
GE………………….......1,383…….125,267…….1.10%
Caterpillar…………......213………21,529…….0.99%
Microsoft………….....1,212……..123,639……0.98%
United Technologies..310……….33,194…….0.93%
Exxon Mobil……......3,196…….357,728……0.89%
3M…………………..........235……….30,611…….0.77%
IBM…………………........604……….85,554…….0.71%
Boeing……………….......127….......19,817…….0.64%
Intel………………….......306….......52,651…….0.58%
Hewlett-Packard……...198…......43,995…….0.45%
Alcoa…………………........32….......11,651…….0.27%
Travelers……………........39………23,985…….0.16%
Dupont……………….........10………16,652…….0.06%
Total all 28……….....33,626…1,931,816…….1.74%
Clearly, the large Dow companies are coming out like bandits on the State corporate income tax paying front. They are doing not quite as well as Eli Lilly, but they still are doing very well. But then, this is at the clear expense of severely suffering State citizens, all throughout the country. And incredibly, there are many Republican Governor and other Republican candidates who are running on reducing the State Corporate Income Tax Rate for Big US Corps. That's crazy...they are now paying so little in State Corporate Income Taxes.
I think one reasonable way of computing what a fair State tax these Dow companies should be paying is to compare the current State Corporate Income Tax Rate where the SEC says these companies are located, multiply that by Consolidated Pretax Income, and compare this result with what state income tax they actually paid. Granted, using the current tax rate is a shortcut, instead of researching the actual corporate tax rate in each year, but it still should provide a decent perspective.
In doing this, four of these 28 Dow companies must be removed. Boeing and Microsoft both have a SEC State Location of Washington, where there is no State Corporate Income Tax presently, although I think this might be now under consideration by some in Washington. Also, Exxon Mobil has a SEC State Location in Texas, which also doesn’t have a State Corporate Income Tax presently. And lastly, Procter & Gamble is based in Ohio, which now has a Gross Receipts Tax rather than a State Corporate Income Tax.
Anyway, here is a summary of the remaining 24 Dow companies:
…………………………………...........State……......State…….Resultant
………………….........SEC….......Corporate…Effective.......Higher
………………….........State…………..Tax……..Tax Rate…...State Tax
………………..........Location………Rate……....Paid…....Last 6 Years
…………………………………………………...................(Millions of dollars)
Chevron…………........CA…………8.84%.......1.42%..........12,733
GE………………….........CT…………7.50%.......1.10%............8,012
IBM……………...........NY………...7.10%.......0.71%............5,470
Intel……………...........CA…………8.84%......0.58%.............4,348
Walmart…………….....AR………...6.50%......2.84%.............4,238
Hewlett-Packard.......CA………...8.84%......0.45%.............3,691
Pfizer……………….......NY………..7.10%......1.67%.............3,638
Merck………………......NJ…………9.00%......2.05%.............3,494
Bank of America.......NC………..6.90%......3.69%..............3,436
Cisco Systems…........CA………..8.84%.......2.95%.............3,094
3M…………………........MN……….9.80%.......0.77%............2,765
JP Morgan Chase…....NY……….7.10%.......3.75%.............2,657
Travelers……………....MN……….9.80%......0.16%...............2,312
United Technologies..CT………..7.50%......0.93%.............2,180
Coca Cola………….......GA………..6.00%......1.19%..............2,109
Verizon…………….......NY………..7.10%......4.21%..............1,925
Disney………………......CA………..8.84%......3.67%..............1,755
Dupont……………........DE………...8.70%.....0.06%..............1,439
Caterpillar…………......IL…………7.30%......0.99%..............1,359
McDonalds………….....IL…………7.30%......2.34%...............1,352
American Express…..NY………..7.10%......2.05%..............1,289
Alcoa………………........PA………...9.99%......0.27%..............1,132
Kraft………………..........IL…………7.30%......2.90%.................991
Home Depot………......GA………...6.00%......4.58%................580
Total all 24…………………………………………………................75,999
Yeah, that is indeed $76 bil of additional State Taxes Paid in the past six years, if all Corporate State Tax Loopholes would have been closed, and that amount is just for these 24 Dow companies. And look how huge the impact is in California. There are five California companies listed above, and the resultant higher state taxes paid would have been $25.6 bil, more than a third of the total for all 24 companies.
If I can get some time, I’ll later expand this key research to include perhaps 40 or 50 of the largest non-Dow companies.
US Big Corps keep complaining about all the uncertainty they are faced with under the Obama Administration. I think a big part of this uncertainty is the chance they will now get caught at some of their shenanigans, such as all of the Corporate Tax Loopholes they are taking advantage of. These US Big Corps didn’t have to worry about this during the laissez-faire Bush/Cheney Administration. Now they do, and they are scared…as well they should be. And this research study shows that it is not just massive Federal Corporate Tax Loopholes they are using, but also huge State Corporate Tax Loopholes too.
Many perceptive, visionary Democratic State Governors, like Ed Rendell in Pennsylvania and Brian Schweitzer in Montana, just to name two of the many, are now clearly aware of these State Corporate Tax Loopholes. They are going after closing them aggressively, but as expected, there is this incredible push back by these well-heeled Big US Corps and their very influential lobbyists. The Republican State Governors, and those Republican Governor candidates running for office in November 2010, are sweeping this key State Corporate Tax Loophole issue under the carpet, hoping their State citizen voters won’t catch them on what their position is on closing these massive State Corporate Tax Loopholes.
The best way to close these State Corporate Tax Loopholes, and thus relieve some of the pressure on State Budgets and also to help financially desperate State citizens, is to elect Democratic Governors….it’s that simple. The Republican Governors and Republican Governor candidates strongly support Big Corporate State Income Tax Loopholes used so extensively by Big US Corps.
I think there are some very perceptive, visionary Democrats, running now for both State and Federal offices in November 2010, who are perceptively touting for the Federal Government to assist State Governments in helping them close some of these State Corporate Tax Loopholes. The issues are so complex here, and frankly many States don’t have the financial expertise to compete with the very crafty, brilliant Big US Corps, their bright financial advisors, and their financially savvy lobbyists. Because the bucks are so large here, and because State citizens will be helped so much, I am sure the States and their citizens would really appreciate the Federal assistance.
I don’t think the problem here is that these State Corporate Tax Loopholes are being used by small and medium-sized corporations. Instead, I think the entire problem here is with the very large US Corps taking huge advantage of these State Corporate Tax Loopholes, at the severe expense of State citizens. I think it would be a much wiser strategy for States to close these State Corporate Tax Loopholes, and then use the cash proceeds to fund very healthy tax incentives for small and medium-sized businesses to create many decent jobs, in order to bring the horrific unemployment and underemployment rates down.
Thursday, October 28, 2010
Thursday, October 21, 2010
Does Indiana Bloody 8th Candidate Bucshon Have a Conflict of Interest with His Huge Corporate Tax-Slashing Plan?
Wealthy heart surgeon Dr. Larry Bucshon, who is running as the US House Republican candidate in Indiana’s Bloody 8th District, is running on a tax plan that will reduce the corporate US federal income tax rate on corporations of all sizes by an incredible 43%, from 35% down to 20%.
Dr. Bucshon so far hasn’t disclosed what the impact would be on his family’s personal financial wealth, if his tax plan were enacted.
I think his tax plan, if enacted, would increase his personal wealth by so incredibly much that I think that he has a serious conflict of interest here. Let me give you the details of my assessment, and you can reach your own conclusions.
Bucshon so far has refused to disclose the amount of annual income he earns. He also has refused so far to disclose his direct and indirect, both public and private common stock holdings he and his wife have, including any common stock holdings in mutual funds, and in retirement plans.
Let me illustrate what the increase in the market value of a typical common stock holding would be under his radical tax plan.
As any stock professional will tell you, common stock prices are driven by after-tax earnings. The price-earnings ratio is the key to common stock valuation. Let me show how price-earnings ratio and stock valuations work.
For simplicity, let’s say a 100% purely domestic company’s common stock is worth $65 per share, and that it has 10 mil common shares outstanding, and thus it has a total market capitalization of $650 mil.
Let’s also assume that this company’s pretax earnings for the current year are $100 mil and, ignoring state income taxes, and also ignoring any tax loopholes, this company’s federal income tax expense is 35% X $100 mil, or $35 million. Thus, this company’s after-tax net income is $65 mil.
That $65 million of earnings, translates to earnings per share of $6.50 (i.e. $65 mil / 10 mil shares).
Thus, the company is selling for a price-earnings ratio of 10, or $65 market price per share divided by $6.50 earnings per share.
So let’s see how these numbers would change with Dr. Bucshon’s tax plan.
The current year’s pretax earnings of $100 mil remains the same. The income tax expense drops from $35 mil to $20 mil (i.e. 20% X $100 mil). Thus, the after-tax net income increases from $65 mil to $80 mil, or by 23%.
Therefore, the earnings per share increases from $6.50 per share to $8.00 per share. And assuming this company is worth 10 times earnings, its fair market value per common share would increase from $65 to $80, or by the same 23%.
Thus, anybody owning purely domestic common stock has their common stock holdings increase in value by 23% under Dr. Bucshon’s tax plan.
But what if you own the common stock of a US Multinational Corp? This gets tricky, but when any foreign earnings are repatriated presently, this company would effectively pay an income tax rate of 35%, thus in the long-run, you would generally get the same economic result as you would if you owned the common stock of a purely domestic corp.
But there is something else really huge here with US Multinational Corps and Dr. Bucshon’s tax plan. Since, he’s in the medical field, and we’re in Indiana, let me explain by simplistically assuming that all of his common stock holdings are in Eli Lilly, an Indianapolis-based Big Pharma Multinational Corp.
At the end of 2009, Lilly had Unremitted Foreign Earnings of $15,460,000,000 (yeah, that’s $15.46 bil). These are Lilly’s cumulative earnings outside of the US, earned in places like Puerto Rico, where labor costs are low, and corporate income taxes even lower. These foreign earnings have not yet been income taxed in the US. These Unremitted Foreign Earnings are parked mostly in Cash and Investments outside the US.
When these Unremitted Foreign Earnings are repatriated back to Lilly’s US parent, these earnings are grossed up to get them on a pretax basis, and for the starting point, the corporate US federal income tax would be computed at 35% X these grossed up foreign earnings. I don’t have enough information to make the exact computation, but let’s just assume the grossed up dividend income, upon foreign earnings repatriation, comes to $20 bil.
Under Dr. Bucshon’s drastic Big Multinational Corp tax slashing plan, assuming that Lilly’s entire $15.46 bil of foreign earnings were repatriated back to the US, as a starting point, the related $20 bil of grossed up dividend income would be taxed at only 20%, rather than at 35%. Thus the windfall economic tax benefit to Lilly here would be 15% X $20 bil, or an amazingly high $3.0 bil.
Thus, under Dr. Bucshon’s tax plan, as you can see from the Lilly illustration above, the common stock holders of US Multinational Corp common stock would not only benefit from the increased after-tax earnings each year from here on out, just like they would if this was a purely domestic corporation, but they also would benefit gigantically from the 15% tax savings on all cumulative previously Unremitted Foreign Earnings.
And the crazy thing here is that, under Dr. Bucshon’s tax plan, it’s not just Eli Lilly that would get this $3.0 bil tax bonanza, but it would be all US Multinational Corp getting tax bonanzas. How much? My rough estimate is $250 bil to $350 bil.
But getting back to Dr. Bucshon’s specific financial situation, the key point is we need to know how much common stock Dr. Bucshon and his wife own, either directly or indirectly. It appears that he won’t give it to us, so let me very roughly estimate it.
Dr. Bucshon is a very gifted heart surgeon, and has been Physician President and Medical Director of Cardiovascular Surgery of Ohio Valley HeartCare (OVHC) since 2003. OVHC has eight locations in three states. OVHC has eleven Cardiovascular Physicians, five Clinical Directors, and six Nurse Practitioners.
Dr. Bucshon’s wife is also a very gifted Anesthesiologist. Whoa, two very accomplished doctors in the family. Congrats to the both of them.
When I extensively study heart surgeons and anesthesiologists on the web, and factor in the fact that Dr. Larry Bucshon is the President of this very prosperous, prestigious cardiovascular health care company with such a broad reach, the two of them combined should be making $1.0 mil to $1.5 mil per year in total compensation, including benefits like profit sharing/pensions. And I think that this estimated annual compensation would be their average annual compensation for the past eight years that he was President of this incredibly successful surgeon physician practice.
I don’t have any information, but my hunch is that the very successful OVHC is a personal service corporation, which is presently taxed at 35%, which under Dr. Bucshon’s tax plan, would also be reduced down to 20%. And then I am guessing that he owns some of the common stock of this OVHC personal service corporation. Given how successful it has been, and its very broad reach, OVHC has to be worth an awful lot of money, and with Dr. Bucshon's tax plan, it would be worth 23% more.
And then you have to factor in the “smart money” effect on the Bucshon family wealth. The “smart money” on Wall Street doesn't bias its economic assessments by Party politics. It just coldly looks at the facts and makes honest interpretations of the economic impact. That's why it's called "smart money".
This “smart money” will generally tell you that wealthy common stock investors, probably like the very smart Bucshon family, benefited dramatically from the Obama Administration driven upward explosion of the stock market since its low in March 2009. That would add much to the fair market value of the Bucshon family common stock holdings.
Anyway, when I put it altogether, I would be very surprised if the net worth of the Bucshon family wasn’t at least $10 mil. And then let’s assume that half of that, or $5 mil, is in common stock, either owned directly or indirectly by Dr. Bucshon and his wife. And then you also have to include the common stock in their mutual funds, and also common stock in their retirement plans.
Under Dr. Bucshon’s tax plan, as shown earlier, this assumed $5 mil of common stock should increase in value by 23%, or by $1,150,000, assuming all of the common stock was held in purely domestic companies, like the very lucrative OVHC. If instead, it was held in common stock of US Multinational Corps, the percentage increase is much higher than 23%, due to the additional windfall tax benefits from the lower 15% tax on the Unremitted Foreign Earnings of Multinational Corps, resulting from Bucshon's tax plan.
If you want to be conservative, and cut the above Bucshon family common stock holdings in half, under the Bucshon tax plan, the Bucshon family’s personal wealth would still increase by at least a very healthy $575,000.
Personally, I think when candidates are this obscenely wealthy, they live in a different world than, and they frequently have lost touch with, the overwhelming majority of citizens in their District. What happens here is if elected, this person ends us just working for citizens in his District that share his ideological views. And I think this is clearly the case with Dr. Bucshon.
On the other hand, Trent Van Haaften, a moderate, clearly understands that he is working for all 8th District citizens. In certain of his votes, he knows he’ll upset the left, and in other votes, he knows he’ll upset the far right. But this is how the broken US government’s gridlock will get fixed…with more legislators in it like moderates Trent Van Haaften and Baron Hill, who are willing to work across the aisle.
Dr. Bucshon so far hasn’t disclosed what the impact would be on his family’s personal financial wealth, if his tax plan were enacted.
I think his tax plan, if enacted, would increase his personal wealth by so incredibly much that I think that he has a serious conflict of interest here. Let me give you the details of my assessment, and you can reach your own conclusions.
Bucshon so far has refused to disclose the amount of annual income he earns. He also has refused so far to disclose his direct and indirect, both public and private common stock holdings he and his wife have, including any common stock holdings in mutual funds, and in retirement plans.
Let me illustrate what the increase in the market value of a typical common stock holding would be under his radical tax plan.
As any stock professional will tell you, common stock prices are driven by after-tax earnings. The price-earnings ratio is the key to common stock valuation. Let me show how price-earnings ratio and stock valuations work.
For simplicity, let’s say a 100% purely domestic company’s common stock is worth $65 per share, and that it has 10 mil common shares outstanding, and thus it has a total market capitalization of $650 mil.
Let’s also assume that this company’s pretax earnings for the current year are $100 mil and, ignoring state income taxes, and also ignoring any tax loopholes, this company’s federal income tax expense is 35% X $100 mil, or $35 million. Thus, this company’s after-tax net income is $65 mil.
That $65 million of earnings, translates to earnings per share of $6.50 (i.e. $65 mil / 10 mil shares).
Thus, the company is selling for a price-earnings ratio of 10, or $65 market price per share divided by $6.50 earnings per share.
So let’s see how these numbers would change with Dr. Bucshon’s tax plan.
The current year’s pretax earnings of $100 mil remains the same. The income tax expense drops from $35 mil to $20 mil (i.e. 20% X $100 mil). Thus, the after-tax net income increases from $65 mil to $80 mil, or by 23%.
Therefore, the earnings per share increases from $6.50 per share to $8.00 per share. And assuming this company is worth 10 times earnings, its fair market value per common share would increase from $65 to $80, or by the same 23%.
Thus, anybody owning purely domestic common stock has their common stock holdings increase in value by 23% under Dr. Bucshon’s tax plan.
But what if you own the common stock of a US Multinational Corp? This gets tricky, but when any foreign earnings are repatriated presently, this company would effectively pay an income tax rate of 35%, thus in the long-run, you would generally get the same economic result as you would if you owned the common stock of a purely domestic corp.
But there is something else really huge here with US Multinational Corps and Dr. Bucshon’s tax plan. Since, he’s in the medical field, and we’re in Indiana, let me explain by simplistically assuming that all of his common stock holdings are in Eli Lilly, an Indianapolis-based Big Pharma Multinational Corp.
At the end of 2009, Lilly had Unremitted Foreign Earnings of $15,460,000,000 (yeah, that’s $15.46 bil). These are Lilly’s cumulative earnings outside of the US, earned in places like Puerto Rico, where labor costs are low, and corporate income taxes even lower. These foreign earnings have not yet been income taxed in the US. These Unremitted Foreign Earnings are parked mostly in Cash and Investments outside the US.
When these Unremitted Foreign Earnings are repatriated back to Lilly’s US parent, these earnings are grossed up to get them on a pretax basis, and for the starting point, the corporate US federal income tax would be computed at 35% X these grossed up foreign earnings. I don’t have enough information to make the exact computation, but let’s just assume the grossed up dividend income, upon foreign earnings repatriation, comes to $20 bil.
Under Dr. Bucshon’s drastic Big Multinational Corp tax slashing plan, assuming that Lilly’s entire $15.46 bil of foreign earnings were repatriated back to the US, as a starting point, the related $20 bil of grossed up dividend income would be taxed at only 20%, rather than at 35%. Thus the windfall economic tax benefit to Lilly here would be 15% X $20 bil, or an amazingly high $3.0 bil.
Thus, under Dr. Bucshon’s tax plan, as you can see from the Lilly illustration above, the common stock holders of US Multinational Corp common stock would not only benefit from the increased after-tax earnings each year from here on out, just like they would if this was a purely domestic corporation, but they also would benefit gigantically from the 15% tax savings on all cumulative previously Unremitted Foreign Earnings.
And the crazy thing here is that, under Dr. Bucshon’s tax plan, it’s not just Eli Lilly that would get this $3.0 bil tax bonanza, but it would be all US Multinational Corp getting tax bonanzas. How much? My rough estimate is $250 bil to $350 bil.
But getting back to Dr. Bucshon’s specific financial situation, the key point is we need to know how much common stock Dr. Bucshon and his wife own, either directly or indirectly. It appears that he won’t give it to us, so let me very roughly estimate it.
Dr. Bucshon is a very gifted heart surgeon, and has been Physician President and Medical Director of Cardiovascular Surgery of Ohio Valley HeartCare (OVHC) since 2003. OVHC has eight locations in three states. OVHC has eleven Cardiovascular Physicians, five Clinical Directors, and six Nurse Practitioners.
Dr. Bucshon’s wife is also a very gifted Anesthesiologist. Whoa, two very accomplished doctors in the family. Congrats to the both of them.
When I extensively study heart surgeons and anesthesiologists on the web, and factor in the fact that Dr. Larry Bucshon is the President of this very prosperous, prestigious cardiovascular health care company with such a broad reach, the two of them combined should be making $1.0 mil to $1.5 mil per year in total compensation, including benefits like profit sharing/pensions. And I think that this estimated annual compensation would be their average annual compensation for the past eight years that he was President of this incredibly successful surgeon physician practice.
I don’t have any information, but my hunch is that the very successful OVHC is a personal service corporation, which is presently taxed at 35%, which under Dr. Bucshon’s tax plan, would also be reduced down to 20%. And then I am guessing that he owns some of the common stock of this OVHC personal service corporation. Given how successful it has been, and its very broad reach, OVHC has to be worth an awful lot of money, and with Dr. Bucshon's tax plan, it would be worth 23% more.
And then you have to factor in the “smart money” effect on the Bucshon family wealth. The “smart money” on Wall Street doesn't bias its economic assessments by Party politics. It just coldly looks at the facts and makes honest interpretations of the economic impact. That's why it's called "smart money".
This “smart money” will generally tell you that wealthy common stock investors, probably like the very smart Bucshon family, benefited dramatically from the Obama Administration driven upward explosion of the stock market since its low in March 2009. That would add much to the fair market value of the Bucshon family common stock holdings.
Anyway, when I put it altogether, I would be very surprised if the net worth of the Bucshon family wasn’t at least $10 mil. And then let’s assume that half of that, or $5 mil, is in common stock, either owned directly or indirectly by Dr. Bucshon and his wife. And then you also have to include the common stock in their mutual funds, and also common stock in their retirement plans.
Under Dr. Bucshon’s tax plan, as shown earlier, this assumed $5 mil of common stock should increase in value by 23%, or by $1,150,000, assuming all of the common stock was held in purely domestic companies, like the very lucrative OVHC. If instead, it was held in common stock of US Multinational Corps, the percentage increase is much higher than 23%, due to the additional windfall tax benefits from the lower 15% tax on the Unremitted Foreign Earnings of Multinational Corps, resulting from Bucshon's tax plan.
If you want to be conservative, and cut the above Bucshon family common stock holdings in half, under the Bucshon tax plan, the Bucshon family’s personal wealth would still increase by at least a very healthy $575,000.
Personally, I think when candidates are this obscenely wealthy, they live in a different world than, and they frequently have lost touch with, the overwhelming majority of citizens in their District. What happens here is if elected, this person ends us just working for citizens in his District that share his ideological views. And I think this is clearly the case with Dr. Bucshon.
On the other hand, Trent Van Haaften, a moderate, clearly understands that he is working for all 8th District citizens. In certain of his votes, he knows he’ll upset the left, and in other votes, he knows he’ll upset the far right. But this is how the broken US government’s gridlock will get fixed…with more legislators in it like moderates Trent Van Haaften and Baron Hill, who are willing to work across the aisle.
Wednesday, October 20, 2010
Terre Haute, IN Tribune-Star Endorses Underdog Charismatic Candidate Trent Van Haaften in Indiana’s Bloody 8th District Race
Many people across the country and around the world, probably only know of Terre Haute, IN because of the 1979 NCAA men’s basketball championship matchup of Indiana State’s Larry Bird and Michigan State’s Magic Johnson. Indiana State is in Terre Haute.
I know Terre Haute very well, working full-time second shift in the old Columbia Records plant there, while I was getting my undergrad degree in accounting at Indiana State, which has had a superlative accounting program for many, many years. I also taught accounting there as a graduate assistant.
The only problem I have with Terre Haute, and also with Bloomington, for that matter, is how their high schools continually trounce the Evansville area cross country teams, since my younger daughter and her teammates had to continually look at the backs of these Terre Haute and Bloomington High School runners, when she ran Cross Country for legendary Castle High School coach Steve Edwardson.
Anyway, man, I wish I was blessed with the ability to write so crisply, logically, and objectively as whoever just wrote the Editorial for the very highly respected Terre Haute, IN Tribune-Star, where Democrat Trent Van Haaften was just endorsed for the US House of Representatives in Indiana's Bloody 8th District. He is running as a clear underdog against very wealthy, highly financed by silent special interests, Republican Dr. Larry Bucshon.
But then I guess if you write for a newspaper that services customers in cities where some very prestigious universities are located, like Indiana State University (OK, so being an ISU grad, maybe I'm biased) and superb engineering college Rose Hulman, both located in Terre Haute, and also like IU-Bloomington, one of the most prestigious public universities in the entire country (OK, I'm biased, since my older daughter just recently graduated from there...but it is true), your writing and critical reasoning better be superb, or you won't sell any newspapers, because you have a very tough audience.
This Tribune-Star Editorial Endorsement fairly, clearly, and thoroughly presents both the positives and negatives of each candidate, consistent with the way the very best universities teach critical reasoning. And then this Editorial reaches its conclusion based on the extensive evidence it presents relative to each candidate.
In sharp contrast, the Evansville Courier and Press Endorsement of wealthy heart surgeon Larry Bucshon doesn't follow the same fair-minded, critical reasoning, thorough, crisply written approach. In all fairness, it should be pointed out that the Evanville Courier and Press is owned by the very conservative Cincinnati-based Scripps organization.
The Evansville Courier and Press Endorsement of Dr. Bucshon is clearly one sided in blindly presenting its support for Dr. Bucshon, and I think would be given a failing grade by just about every University of Southern Indiana and University of Evansville (OK, you caught me again, I have taught at both of these superb local Evansville universities) professor in content, thoroughness, critical reasoning and writing ability. And this failing grade had nothing to do with the fact that the Evansville Courier consistently spelled the name of the candidate it was endorsing incorrectly....I'm not kidding.
I think if citizens of the Bloody 8th District really knew both Dr. Bucshon and Van Haaften, the election would be a landslide, with Van Haaften easily winning.
And it's not just that the very wealthy heart surgeon Dr. Bucshon is such a right wing extremist, and has so very little in common with 8th District citizens.
It's also that Trent Van Haaften is a moderate, just where the overwhelming majority of 8th District citizens are. And he is exceptionally bright, hard-working, and yeah even a JFK type charismatic speaker...but what's wrong with that?....it'll get Southwestern Indiana more National recognition, and also more influence in the US House. And he's very likeable...a consensus builder...will work well on the other side of the aisle...something critically needed in these such highly partisan times of extremists on both sides of the aisle.
Unfortunately to 8th District voters desperately wanting all of the critical facts to make a wise, informed voting decision, Dr. Bucshon has successfully hidden certain of his key traits, including his wealth, and even going so far as not showing up for a debate in Terre Haute.
I've reviewed a lot of websites of national candidates, and I have not seen any other candidate who's tax plan is to reduce the corporate US federal income tax rate on large Multinational Corps immediately by an amazingly high 43%, from 35% down to 20%. If Dr. Bucshon is elected, Big Multinational Corps know they'll have a rock-solid diehard supporter of their special interests.
I bet now the massive amount of silent financial support Dr. Bucshon is receiving in this Bloody 8th election makes sense to you. Well, the secretive organization "Americans for Job Security" has already spent an incredible $355,000 so far by blitzing the Bloody 8th District with dishonest TV ads, attacking Van Haaften. The only jobs this organization is securing is the US jobs that have already been shipped overseas by large US Multinational Corps to low wage and to low taxed international tax havens.
The problem here is that by electing another blind supporter of large Multinational Corps, it will be clearly detrimental to the US middle class, as well as to the country as a whole.
Dr. Bucshon's tax plan is clearly bold, but let’s examine it further. From a very exhaustive study I performed in reviewing SEC income tax footnotes, the largest US Multinational Corps presently actually pay just under a 10% corporate US federal income tax rate, much lower than the artificially stated corporate US federal income tax rate of 35%. The vast difference here is due to tons of corporate tax loopholes used by large Multinational Corps, a substantial one being the massive tax incentives to ship US jobs overseas. But there are also many other corporate tax loopholes like the numerous substantial tax loopholes granted to Big Oil companies.
And Dr. Bucshon's tax plan is to reduce this US corporate federal income tax rate by 43%, even after considering that the current 10% tax rate being paid by large Multinational Corps is already 71% below the 35% stated corporate tax rate.
The Terre Haute Tribune-Star, more than anything I have seen, has presented in its Editorial an outstanding insight into the key characteristics, political philosophy, and potential effectiveness of each candidate in representing the interests of Indiana 8th District citizens in the US House. I think it is must reading by all 8th District citizens, and frankly by everyone in the country, and even in the world, due to its keen insights here, so succinctly written.
The link below has this exceptionally written and well reasoned Editorial Endorsement.
Anyway, since after many tries, I haven't been able to link this really good web article, what I'll do instead is to copy it in its entirety below.
=====================================================
October 17, 2010
TRIBUNE-STAR EDITORIAL: Sizing up the 8th
A strict ideologue, or consensus builder?
----
The Tribune-Star The Tribune Star Sun Oct 17, 2010, 05:54 AM EDT
BLOOMINGTON — Evan Bayh’s sudden decision last winter to retire from the U.S. Senate threw Indiana’s political climate into turmoil. Within a week, the 8th Congressional District was sucked into the storm as well, when two-term Rep. Brad Ellsworth announced his intention to surrender his House seat and pursue Bayh’s Senate seat.
The result was an open seat in the 8th, one of the most politically volatile and hotly contested swing districts in the nation.
A heated Republican Party primary produced Evansville heart surgeon Larry Bucshon as the GOP candidate. He narrowly defeated multiple opponents.
Democratic Party district officials eventually chose two-term state Rep. Trent Van Haaften, a former prosecutor in Posey County, to seek Ellsworth’s vacated House seat. There was no Democratic primary because of the short time Ellsworth had to pull out and seek Bayh’s Senate post.
With both candidates from southwestern Indiana — Bucshon from Newburgh, Van Haaften from Poseyville — potential voters here in the northern part of the district have had to rely primarily on the political campaign to get to know them. That is certainly an imperfect way to gauge what these men are all about, but it’s the hand we’ve been dealt.
In summary, both men are highly successful, intelligent individuals who are quite accomplished in their respective fields. Having a doctor and a lawyer to pick from presents voters with good choices. Bucshon is a native of Illinois but has lived and worked in southwest Indiana for many years. Van Haaften is a lifelong resident of Posey County.
From a political standpoint, the candidates present voters with clear choices.
Bucshon is a passionate conservative with a firm grasp on the issues he considers most important in today’s political climate. His is closely aligned with the national Republican agenda. His ideology is firm and strongly held, whether the issues are economic, political or social in nature.
For example, Bucshon believes in what he calls “limited government” and that government spends too much money. He holds a strict “free-markets” economic philosophy, supports repeal of the Obama health care law and thinks more people from the private sector should step forward to tackle problems.
Van Haaften presents himself as similar in political attitude and philosophy to Ellsworth — a centrist Democrat who advocates bipartisanship and cooperation as a better way of attacking issues. His views on issues are moderate, at least from a Democratic perspective. He is more likely to stake out middle ground to reach consensus than cling to strict political ideology, much to the chagrin of those whose positions are more liberal.
In addition to taking moderate positions in such arenas as health care (he supports many of the provisions of Obama law but believes costs must be contained in the long term), he shows concern about the constituents of his district as a whole and speaks about finding ways to serve them all in Congress, not just those who agree with his political decisions.
For right-leaning voters motivated by ideology and favoring the national GOP agenda, Bucshon is a good fit. He undoubtedly would satisfy those who want strict political and philosophical adherence from their congressman.
Van Haaften isn’t likely to give that kind of satisfaction to liberal Democratic constituents. On the continuum, he is more moderate than Bucshon, which should make him more effective in Congress.
Carrying an ideological flag into a pitched political battle is a luxury few representatives will be able to afford in the coming sessions. What Congress doesn’t need is more partisan rancor and legislative gridlock. Van Haaften seems to understand that better than Bucshon.
For that, and for his centrist political philosophy and commitment to being a consensus builder, we prefer the Poseyville Democrat. Van Haaften gets our endorsement.
=========================================
I know Terre Haute very well, working full-time second shift in the old Columbia Records plant there, while I was getting my undergrad degree in accounting at Indiana State, which has had a superlative accounting program for many, many years. I also taught accounting there as a graduate assistant.
The only problem I have with Terre Haute, and also with Bloomington, for that matter, is how their high schools continually trounce the Evansville area cross country teams, since my younger daughter and her teammates had to continually look at the backs of these Terre Haute and Bloomington High School runners, when she ran Cross Country for legendary Castle High School coach Steve Edwardson.
Anyway, man, I wish I was blessed with the ability to write so crisply, logically, and objectively as whoever just wrote the Editorial for the very highly respected Terre Haute, IN Tribune-Star, where Democrat Trent Van Haaften was just endorsed for the US House of Representatives in Indiana's Bloody 8th District. He is running as a clear underdog against very wealthy, highly financed by silent special interests, Republican Dr. Larry Bucshon.
But then I guess if you write for a newspaper that services customers in cities where some very prestigious universities are located, like Indiana State University (OK, so being an ISU grad, maybe I'm biased) and superb engineering college Rose Hulman, both located in Terre Haute, and also like IU-Bloomington, one of the most prestigious public universities in the entire country (OK, I'm biased, since my older daughter just recently graduated from there...but it is true), your writing and critical reasoning better be superb, or you won't sell any newspapers, because you have a very tough audience.
This Tribune-Star Editorial Endorsement fairly, clearly, and thoroughly presents both the positives and negatives of each candidate, consistent with the way the very best universities teach critical reasoning. And then this Editorial reaches its conclusion based on the extensive evidence it presents relative to each candidate.
In sharp contrast, the Evansville Courier and Press Endorsement of wealthy heart surgeon Larry Bucshon doesn't follow the same fair-minded, critical reasoning, thorough, crisply written approach. In all fairness, it should be pointed out that the Evanville Courier and Press is owned by the very conservative Cincinnati-based Scripps organization.
The Evansville Courier and Press Endorsement of Dr. Bucshon is clearly one sided in blindly presenting its support for Dr. Bucshon, and I think would be given a failing grade by just about every University of Southern Indiana and University of Evansville (OK, you caught me again, I have taught at both of these superb local Evansville universities) professor in content, thoroughness, critical reasoning and writing ability. And this failing grade had nothing to do with the fact that the Evansville Courier consistently spelled the name of the candidate it was endorsing incorrectly....I'm not kidding.
I think if citizens of the Bloody 8th District really knew both Dr. Bucshon and Van Haaften, the election would be a landslide, with Van Haaften easily winning.
And it's not just that the very wealthy heart surgeon Dr. Bucshon is such a right wing extremist, and has so very little in common with 8th District citizens.
It's also that Trent Van Haaften is a moderate, just where the overwhelming majority of 8th District citizens are. And he is exceptionally bright, hard-working, and yeah even a JFK type charismatic speaker...but what's wrong with that?....it'll get Southwestern Indiana more National recognition, and also more influence in the US House. And he's very likeable...a consensus builder...will work well on the other side of the aisle...something critically needed in these such highly partisan times of extremists on both sides of the aisle.
Unfortunately to 8th District voters desperately wanting all of the critical facts to make a wise, informed voting decision, Dr. Bucshon has successfully hidden certain of his key traits, including his wealth, and even going so far as not showing up for a debate in Terre Haute.
I've reviewed a lot of websites of national candidates, and I have not seen any other candidate who's tax plan is to reduce the corporate US federal income tax rate on large Multinational Corps immediately by an amazingly high 43%, from 35% down to 20%. If Dr. Bucshon is elected, Big Multinational Corps know they'll have a rock-solid diehard supporter of their special interests.
I bet now the massive amount of silent financial support Dr. Bucshon is receiving in this Bloody 8th election makes sense to you. Well, the secretive organization "Americans for Job Security" has already spent an incredible $355,000 so far by blitzing the Bloody 8th District with dishonest TV ads, attacking Van Haaften. The only jobs this organization is securing is the US jobs that have already been shipped overseas by large US Multinational Corps to low wage and to low taxed international tax havens.
The problem here is that by electing another blind supporter of large Multinational Corps, it will be clearly detrimental to the US middle class, as well as to the country as a whole.
Dr. Bucshon's tax plan is clearly bold, but let’s examine it further. From a very exhaustive study I performed in reviewing SEC income tax footnotes, the largest US Multinational Corps presently actually pay just under a 10% corporate US federal income tax rate, much lower than the artificially stated corporate US federal income tax rate of 35%. The vast difference here is due to tons of corporate tax loopholes used by large Multinational Corps, a substantial one being the massive tax incentives to ship US jobs overseas. But there are also many other corporate tax loopholes like the numerous substantial tax loopholes granted to Big Oil companies.
And Dr. Bucshon's tax plan is to reduce this US corporate federal income tax rate by 43%, even after considering that the current 10% tax rate being paid by large Multinational Corps is already 71% below the 35% stated corporate tax rate.
The Terre Haute Tribune-Star, more than anything I have seen, has presented in its Editorial an outstanding insight into the key characteristics, political philosophy, and potential effectiveness of each candidate in representing the interests of Indiana 8th District citizens in the US House. I think it is must reading by all 8th District citizens, and frankly by everyone in the country, and even in the world, due to its keen insights here, so succinctly written.
The link below has this exceptionally written and well reasoned Editorial Endorsement.
Anyway, since after many tries, I haven't been able to link this really good web article, what I'll do instead is to copy it in its entirety below.
=====================================================
October 17, 2010
TRIBUNE-STAR EDITORIAL: Sizing up the 8th
A strict ideologue, or consensus builder?
----
The Tribune-Star The Tribune Star Sun Oct 17, 2010, 05:54 AM EDT
BLOOMINGTON — Evan Bayh’s sudden decision last winter to retire from the U.S. Senate threw Indiana’s political climate into turmoil. Within a week, the 8th Congressional District was sucked into the storm as well, when two-term Rep. Brad Ellsworth announced his intention to surrender his House seat and pursue Bayh’s Senate seat.
The result was an open seat in the 8th, one of the most politically volatile and hotly contested swing districts in the nation.
A heated Republican Party primary produced Evansville heart surgeon Larry Bucshon as the GOP candidate. He narrowly defeated multiple opponents.
Democratic Party district officials eventually chose two-term state Rep. Trent Van Haaften, a former prosecutor in Posey County, to seek Ellsworth’s vacated House seat. There was no Democratic primary because of the short time Ellsworth had to pull out and seek Bayh’s Senate post.
With both candidates from southwestern Indiana — Bucshon from Newburgh, Van Haaften from Poseyville — potential voters here in the northern part of the district have had to rely primarily on the political campaign to get to know them. That is certainly an imperfect way to gauge what these men are all about, but it’s the hand we’ve been dealt.
In summary, both men are highly successful, intelligent individuals who are quite accomplished in their respective fields. Having a doctor and a lawyer to pick from presents voters with good choices. Bucshon is a native of Illinois but has lived and worked in southwest Indiana for many years. Van Haaften is a lifelong resident of Posey County.
From a political standpoint, the candidates present voters with clear choices.
Bucshon is a passionate conservative with a firm grasp on the issues he considers most important in today’s political climate. His is closely aligned with the national Republican agenda. His ideology is firm and strongly held, whether the issues are economic, political or social in nature.
For example, Bucshon believes in what he calls “limited government” and that government spends too much money. He holds a strict “free-markets” economic philosophy, supports repeal of the Obama health care law and thinks more people from the private sector should step forward to tackle problems.
Van Haaften presents himself as similar in political attitude and philosophy to Ellsworth — a centrist Democrat who advocates bipartisanship and cooperation as a better way of attacking issues. His views on issues are moderate, at least from a Democratic perspective. He is more likely to stake out middle ground to reach consensus than cling to strict political ideology, much to the chagrin of those whose positions are more liberal.
In addition to taking moderate positions in such arenas as health care (he supports many of the provisions of Obama law but believes costs must be contained in the long term), he shows concern about the constituents of his district as a whole and speaks about finding ways to serve them all in Congress, not just those who agree with his political decisions.
For right-leaning voters motivated by ideology and favoring the national GOP agenda, Bucshon is a good fit. He undoubtedly would satisfy those who want strict political and philosophical adherence from their congressman.
Van Haaften isn’t likely to give that kind of satisfaction to liberal Democratic constituents. On the continuum, he is more moderate than Bucshon, which should make him more effective in Congress.
Carrying an ideological flag into a pitched political battle is a luxury few representatives will be able to afford in the coming sessions. What Congress doesn’t need is more partisan rancor and legislative gridlock. Van Haaften seems to understand that better than Bucshon.
For that, and for his centrist political philosophy and commitment to being a consensus builder, we prefer the Poseyville Democrat. Van Haaften gets our endorsement.
=========================================
Monday, October 18, 2010
Use US Big Corp Massive Tax Reserves to Fund Even Bolder US Job Creation
With the US Government Pay-For Rules, a key focus must be on finding wise ways to fund job creation. Here's what I think is a very wise funding vehicle.
Under US generally accepted accounting principles, public companies are required to disclose in their footnotes included in their annual reports filed with the SEC, their best estimate of what they owe in total to all taxing authorities for all of their open tax audit years. The bulk of these amounts disclosed relate to the amounts owed to the US Federal Government. Also included in this total are amounts owed to State Governments and to Foreign Governments.
I did a very quick review of the footnotes of some large US corporations, and also some large foreign corporations with heavy US operations, and from just my very limited review, I found 384 companies that had amounts owed for all open tax audit years in excess of $100 mil each, that in the aggregate totaled $268.1 bil at the most recent fiscal year end, which for the majority of these companies was December 31, 2009.
It takes a very long time for these companies to settle their tax audits with the IRS and other taxing authorities. For the largest Dow companies, there was an average of more than 8 years of open tax audit years.
Huge US Multinational Corps make up a large portion of the Aggregate Balance of Total Tax Reserves for all Corps having Tax Reserves above $100 mil each. Here is a stratification of these Corp Tax Reserves by size:
..Tax Reserves.....
Above $5 bil…………......12 Corps…..$82.1 bil….30.6% of total
$2 bil to $5 bil…………...20 Corps….$56.9 bil….21.2% of total
$1 bil to $2 bil…………....24 Corps….$31.5 bil….11.8% of total
$500 mil to $1 bil……....49 Corps….$35.5 bil….13.2% of total
$250 mil to $500 mil….93 Corps….$32.7 bil….12.2% of total
$100 mil to $250 mil…186 Corps….$29.4 bil….11.0% of total
All above $100 mil…….384 Corps..$268.1 bil…100.0%
Clearly, the focus here in this funding should be on the top of the stratification above, to get the most bang for the buck.
Here are the Tax Reserves, including accrued interest, on the books of the largest US Corps at the end of each of the last three years:
………………………………….........Fiscal Year End………
………………………….........2009-10…2008-09..2007-08
……………………………….......( In billions of dollars)
1.....Pfizer………………….......9.6………..6.7………6.7
2…..JP Morgan Chase……....9.0……….8.2………6.4
3…..GE…………………….........8.7……….8.0……….7.3
4…..AT&T………………..........7.5……….8.0……….7.6
5…..Microsoft…………….......7.3……….6.0………3.5
6…..Bank of America…….....6.4……….4.2……….3.7
7…..General Motors……......5.8………..3.1……….3.1
8…..Merck……………….........5.7………..5.4……….6.1
9…..Wells Fargo…………......5.7………..9.1……….2.9
10….AIG…………………........5.7………..3.8…….....1.6
11….Exxon Mobil………......5.5………...5.6……….5.8
12….IBM…………………........5.3………..4.2………..3.3
13….Morgan Stanley……....4.4………..3.7………..2.9
14….Entergy……………….....4.1………..1.8………..2.5
15….Verizon……………….....4.0………..3.2………..3.5
16….Citigroup……………......3.4………..4.1………..4.3
17….Chevron………………....3.4……….3.0………...2.4
18….Oracle………………........3.1……….2.7………...2.1
19….Tyco Electronics……...2.9……….3.1………...3.0
20….AstraZeneca…………...2.9……….3.1………...3.0
21….Sanofi-Aventis………...2.9……….2.5………...2.4
22….Cisco Systems………....2.8……….3.1………...2.7
23….JNJ……………………......2.7……….2.2………...1.8
24….Sony………………….......2.6………..2.9………...3.0
25….Procter & Gamble……..2.5……….2.7………...3.4
26….Dell………………….........2.3………..1.9………....1.4
27….Time Warner…………...2.2………..2.2………...1.8
28….PepsiCo………………......2.2………..2.1………...1.8
29….Abbott Labs………….....2.2………..1.5………...1.1
30….Goldman Sachs………....2.1………..1.5………...1.1
31….Boeing………………….......2.1………..1.7………..1.4
32….Hewlett Packard………...2.0………..2.3………..2.3
Total Top 32 above $2 bil.139.0……122.6…….104.5
…..Percentage Increase…...13.4%....17.4%
.....................................(in billion of dollars)
Top 32 above $2 bil each.........139.0
33...Energy Future Holdings.......2.0
34...Covidien...............................1.8
35...Comcast...............................1.7
36...Exelon..................................1.5
37...ConocoPhillips.....................1.4
38...Swiss Reinsurance Group......1.4
39...American Express.................1.4
40...Boston Scientific...................1.3
41...Google..................................1.3
42...Honda Motor........................1.3
43...Amgen.................................1.3
44...Apple...................................1.3
45...Walmart...............................1.3
46...Accenture............................1.2
47...Starwood Hotel & Resort......1.2
48...Ford.....................................1.2
49...Eli Lilly.................................1.2
50...Schlumberger.......................1.2
51...Credit Suisse.........................1.2
52...Public Service Enterprise......1.2
53...Johnson Controls..................1.1
54...Edison International.............1.0
55...Kraft......................................1.0
56...Bristol Myers Squibb.............1.0
Total all 56 above $1 bil each...170.5
I think the way I would do the US job creation funding here is to require a higher percentage of tax deposits on open RARs on the companies with the larger liability balances for Tax Reserves.
Perhaps, something like this makes sense. By the end of the ten-year CBO scoring period, the cumulative tax deposits on all open RARs should be the following percentages of the Tax Reserve Balance, exclusive of cumulative tax deposits, on the books of each corp at the end of the ten-year CBO scoring period.
Cumulative Minimum Required Tax Deposits as a percentage of the Balance of the Tax Reserve at the end of the ten-year CBO scoring period:
.....Tax Reserve Balance.........Required Minimum Deposit %
Corps above $10 bil then…….40% of Tax Reserve Balance
Corps $5 bil to $10 bil then…30% of Tax Reserve Balance
Corps $2 bil to $5 bil then…..20% of Tax Reserve Balance
Corps $1 bil to $2 bil then…..10% of Tax Reserve Balance
And the above percentages could be staggered in over the ten-year CBO scoring period. For instance, for a Corp with a Tax Reserve Balance of $1.0 bil today, it would only need to make a tax deposit of 1% of this $1.0 bil, or only a minimum of $10 mil, by the end of year 1.
The positive CBO scoring over the next ten years here will be just huge.
Assuming 10% average annual growth per year (which is conservative since the actual annual growth in Tax Reserves balances of the largest Corps in the most recent year is a much higher 13.4% above), $1.000 bil today is equal to $2.594 bil in ten years, the end of the ten-year CBO scoring period. The above 56 Corps today with Tax Reserves above $1 bil each have aggregate Tax Reserves of $170.5 bil. In ten years, at 10% growth per year, this Tax Reserve for these 56 Corps grows to $442.3 bil.
However, the CBO positive scoring for the next ten years will be for more than just the above 56 Corps in the $1 bil and above Tax Reserve category now. If you conservatively assume that the average annual growth in the Tax Reserve Liability Account is 10% per year, then on average, a Corp with a $386 mil Tax Reserve Balance now will hit the $1 bil minimum threshold in ten years, the end of the CBO scoring period. There are currently 135 Corps with a Tax Reserve balance presently of at least $386 mil.
Also, there weren't very many foreign companies included in the 384 with Tax Reserves I have shown here. The majority of large foreign corps, with heavy US operations, follow International GAAP, rather than US GAAP. Thus, they generally do not disclose the amount of the Tax Reserves they have on their books. But clearly, under my proposal here, these large foreign corps should also be required to make the same tax deposits as large US corps, thus increasing substantially the upfront positive CBO scoring over the next ten years.
For these companies making these tax deposits, there would be no earnings charge to them since these estimated liabilities are already recorded on the books. These companies would be simply partially paying, on a staggered-in basis over the next ten years, a small portion (10% to 40%) of what they agree they owe the IRS.
I think it is only right that these Big US Corps make estimated deposits on their Tax Reserves on a staggered basis. These Big US Corps played a key role in creating the 2000 Lost Decade, along with the related disastrous financial aftershocks on the US economy. Thus it is only fair that they should help the US get out of its horrible jobless recovery.
I think this above massive amount of funding should be used for the desperately needed US job creation. President Obama's exceptionally wise three-pronged economic plan includes 100% equipment expensing, making the research tax credit permanent, and even enhancing it, and $50 bil of Transportation Infrastructure Investments. It's clearly a winner.
I find it interesting that so many "economic pundits" haven't focused on the real reason the US stock market has moved up so markedly in the past couple of months. It's all about the "smart money" making the objective assessment that Obama's three-pronged economic plan is a clear winner. The really smart money doesn't bias its economic assessments by Party politics. It just coldly looks at the facts and makes honest interpretations of the economic impact. That's why it's called "smart money".
However, even though the Obama economic team's three-pronged economic initiative is clearly superb, it doesn't mean it can't be improved. The really smart money knows that Obama is open to excellent ideas from anyone, including from Republicans, to make his economic plan even better. And anytime it comes to money, Republican interest is sparked, and they do have some really good ideas for effective job creation.
As for me, when you have a Great Recession, that has continued unabated for such a long time, I think it is far better to risk overstimulating the US economy, rather than continuing to understimulate it. Since there is so much additional funding here from this tax deposits on IRS open RARs funding vehicle, I would consider the following additions to bolster even further Obama's already very wise three-pronged economic plan:
…..Massive additional green energy tax credits
…..Additional infrastructure investments above the $50 bil, with a clear green emphasis
…..Much more accelerated tax depreciation on both new and existing manufacturing facilities. One way to do this would be to have the first ten years of tax depreciation under the present tax rules to be 100% tax deducted in the first year. And then you could reduce the number of years for all tax deprecation after ten years presently. Such an approach yields substantial accelerated tax depreciation of manufacturing building costs, but with very little, if any, CBO scored cost.
…..Higher tax incentives for building and building improvements in the Gulf Area impacted by either Katrina or by the BP Oil spill. Included here would be rental property, lodging, retail, restaurant, and entertainment facility improvement costs.
...Businesses should get very healthy tax credits for hiring military veterans, for hiring the very long-term unemployed, and for hiring anyone where it can clearly be determined that the job has been backshored (i.e. job shipped back from overseas to the US). However, there should be job retention requirements by the businesses granted this tax credit, or else this upfront tax credit is subsequently recaptured by the US government.
...Massive reductions of loan principal balances of mortgage loans for principal home residences that are either underwater or only 10% above water. The US government infrastructure bank would pay fair market value for the portion of the loan balance of all first, second, and higher mortgage loans held by any financial institution, including those held by Fannie Mae and Freddie Mac, where the total principal loan balance, at all financial institutions, of a home is 90% or more of the fair market value of the home. The US infrastructure bank would write down to its purchase price the mortgage loan principal balance of these partial loans bought from financial institutions. The US infrastructure bank should start this mortgage partial loan acquisition program with underwater mortgages in States which have the highest percentage of underwater mortgages: Florida, Nevada and California. Financial institutions selling these partial loans to the US infrastructure bank would be given tax incentives (for instance, faster loan loss tax deductions). Smaller financial institutions selling these partial loans to the US infrastructure bank will be granted additional tax incentives for selling a portion of its loan principals on these homeowner loans. Fannie Mae and Freddie Mac should be recapitalized, with the necessary capital infusions, in such a way that they will be financially viable entities on a stand-alone basis. The CBO scoring of the US government infrastructure bank should be markedly positive since the subsequent interest income will substantially trump the subsequent loan losses, as long as the loans that the US infrastructure bank buys are set at maturities of ten years or less. Long-term US Real GDP growth, long-term unemployment and underemployment, and the US Debt five and ten years out will all not be at acceptable levels until this horrible underwater home mortgage problem is fixed. Just continuing to patch this immense problem does not work.
...To help solve, on a long-term basis, the horrible Shipping of US Jobs Overseas, if a US Corp accumulates an Unremitted Foreign Earnings amount in excess of a certain amount (perhaps, of in excess of say $15 bil to $25 bil...people a lot smarter than me can figure out the best amount here), for US federal income tax purposes, a foreign earnings repatriation to the US of this excess amount would automatically be triggered, with the resultant US federal income tax paid.
Under US generally accepted accounting principles, public companies are required to disclose in their footnotes included in their annual reports filed with the SEC, their best estimate of what they owe in total to all taxing authorities for all of their open tax audit years. The bulk of these amounts disclosed relate to the amounts owed to the US Federal Government. Also included in this total are amounts owed to State Governments and to Foreign Governments.
I did a very quick review of the footnotes of some large US corporations, and also some large foreign corporations with heavy US operations, and from just my very limited review, I found 384 companies that had amounts owed for all open tax audit years in excess of $100 mil each, that in the aggregate totaled $268.1 bil at the most recent fiscal year end, which for the majority of these companies was December 31, 2009.
It takes a very long time for these companies to settle their tax audits with the IRS and other taxing authorities. For the largest Dow companies, there was an average of more than 8 years of open tax audit years.
Huge US Multinational Corps make up a large portion of the Aggregate Balance of Total Tax Reserves for all Corps having Tax Reserves above $100 mil each. Here is a stratification of these Corp Tax Reserves by size:
..Tax Reserves.....
Above $5 bil…………......12 Corps…..$82.1 bil….30.6% of total
$2 bil to $5 bil…………...20 Corps….$56.9 bil….21.2% of total
$1 bil to $2 bil…………....24 Corps….$31.5 bil….11.8% of total
$500 mil to $1 bil……....49 Corps….$35.5 bil….13.2% of total
$250 mil to $500 mil….93 Corps….$32.7 bil….12.2% of total
$100 mil to $250 mil…186 Corps….$29.4 bil….11.0% of total
All above $100 mil…….384 Corps..$268.1 bil…100.0%
Clearly, the focus here in this funding should be on the top of the stratification above, to get the most bang for the buck.
Here are the Tax Reserves, including accrued interest, on the books of the largest US Corps at the end of each of the last three years:
………………………………….........Fiscal Year End………
………………………….........2009-10…2008-09..2007-08
……………………………….......( In billions of dollars)
1.....Pfizer………………….......9.6………..6.7………6.7
2…..JP Morgan Chase……....9.0……….8.2………6.4
3…..GE…………………….........8.7……….8.0……….7.3
4…..AT&T………………..........7.5……….8.0……….7.6
5…..Microsoft…………….......7.3……….6.0………3.5
6…..Bank of America…….....6.4……….4.2……….3.7
7…..General Motors……......5.8………..3.1……….3.1
8…..Merck……………….........5.7………..5.4……….6.1
9…..Wells Fargo…………......5.7………..9.1……….2.9
10….AIG…………………........5.7………..3.8…….....1.6
11….Exxon Mobil………......5.5………...5.6……….5.8
12….IBM…………………........5.3………..4.2………..3.3
13….Morgan Stanley……....4.4………..3.7………..2.9
14….Entergy……………….....4.1………..1.8………..2.5
15….Verizon……………….....4.0………..3.2………..3.5
16….Citigroup……………......3.4………..4.1………..4.3
17….Chevron………………....3.4……….3.0………...2.4
18….Oracle………………........3.1……….2.7………...2.1
19….Tyco Electronics……...2.9……….3.1………...3.0
20….AstraZeneca…………...2.9……….3.1………...3.0
21….Sanofi-Aventis………...2.9……….2.5………...2.4
22….Cisco Systems………....2.8……….3.1………...2.7
23….JNJ……………………......2.7……….2.2………...1.8
24….Sony………………….......2.6………..2.9………...3.0
25….Procter & Gamble……..2.5……….2.7………...3.4
26….Dell………………….........2.3………..1.9………....1.4
27….Time Warner…………...2.2………..2.2………...1.8
28….PepsiCo………………......2.2………..2.1………...1.8
29….Abbott Labs………….....2.2………..1.5………...1.1
30….Goldman Sachs………....2.1………..1.5………...1.1
31….Boeing………………….......2.1………..1.7………..1.4
32….Hewlett Packard………...2.0………..2.3………..2.3
Total Top 32 above $2 bil.139.0……122.6…….104.5
…..Percentage Increase…...13.4%....17.4%
.....................................(in billion of dollars)
Top 32 above $2 bil each.........139.0
33...Energy Future Holdings.......2.0
34...Covidien...............................1.8
35...Comcast...............................1.7
36...Exelon..................................1.5
37...ConocoPhillips.....................1.4
38...Swiss Reinsurance Group......1.4
39...American Express.................1.4
40...Boston Scientific...................1.3
41...Google..................................1.3
42...Honda Motor........................1.3
43...Amgen.................................1.3
44...Apple...................................1.3
45...Walmart...............................1.3
46...Accenture............................1.2
47...Starwood Hotel & Resort......1.2
48...Ford.....................................1.2
49...Eli Lilly.................................1.2
50...Schlumberger.......................1.2
51...Credit Suisse.........................1.2
52...Public Service Enterprise......1.2
53...Johnson Controls..................1.1
54...Edison International.............1.0
55...Kraft......................................1.0
56...Bristol Myers Squibb.............1.0
Total all 56 above $1 bil each...170.5
I think the way I would do the US job creation funding here is to require a higher percentage of tax deposits on open RARs on the companies with the larger liability balances for Tax Reserves.
Perhaps, something like this makes sense. By the end of the ten-year CBO scoring period, the cumulative tax deposits on all open RARs should be the following percentages of the Tax Reserve Balance, exclusive of cumulative tax deposits, on the books of each corp at the end of the ten-year CBO scoring period.
Cumulative Minimum Required Tax Deposits as a percentage of the Balance of the Tax Reserve at the end of the ten-year CBO scoring period:
.....Tax Reserve Balance.........Required Minimum Deposit %
Corps above $10 bil then…….40% of Tax Reserve Balance
Corps $5 bil to $10 bil then…30% of Tax Reserve Balance
Corps $2 bil to $5 bil then…..20% of Tax Reserve Balance
Corps $1 bil to $2 bil then…..10% of Tax Reserve Balance
And the above percentages could be staggered in over the ten-year CBO scoring period. For instance, for a Corp with a Tax Reserve Balance of $1.0 bil today, it would only need to make a tax deposit of 1% of this $1.0 bil, or only a minimum of $10 mil, by the end of year 1.
The positive CBO scoring over the next ten years here will be just huge.
Assuming 10% average annual growth per year (which is conservative since the actual annual growth in Tax Reserves balances of the largest Corps in the most recent year is a much higher 13.4% above), $1.000 bil today is equal to $2.594 bil in ten years, the end of the ten-year CBO scoring period. The above 56 Corps today with Tax Reserves above $1 bil each have aggregate Tax Reserves of $170.5 bil. In ten years, at 10% growth per year, this Tax Reserve for these 56 Corps grows to $442.3 bil.
However, the CBO positive scoring for the next ten years will be for more than just the above 56 Corps in the $1 bil and above Tax Reserve category now. If you conservatively assume that the average annual growth in the Tax Reserve Liability Account is 10% per year, then on average, a Corp with a $386 mil Tax Reserve Balance now will hit the $1 bil minimum threshold in ten years, the end of the CBO scoring period. There are currently 135 Corps with a Tax Reserve balance presently of at least $386 mil.
Also, there weren't very many foreign companies included in the 384 with Tax Reserves I have shown here. The majority of large foreign corps, with heavy US operations, follow International GAAP, rather than US GAAP. Thus, they generally do not disclose the amount of the Tax Reserves they have on their books. But clearly, under my proposal here, these large foreign corps should also be required to make the same tax deposits as large US corps, thus increasing substantially the upfront positive CBO scoring over the next ten years.
For these companies making these tax deposits, there would be no earnings charge to them since these estimated liabilities are already recorded on the books. These companies would be simply partially paying, on a staggered-in basis over the next ten years, a small portion (10% to 40%) of what they agree they owe the IRS.
I think it is only right that these Big US Corps make estimated deposits on their Tax Reserves on a staggered basis. These Big US Corps played a key role in creating the 2000 Lost Decade, along with the related disastrous financial aftershocks on the US economy. Thus it is only fair that they should help the US get out of its horrible jobless recovery.
I think this above massive amount of funding should be used for the desperately needed US job creation. President Obama's exceptionally wise three-pronged economic plan includes 100% equipment expensing, making the research tax credit permanent, and even enhancing it, and $50 bil of Transportation Infrastructure Investments. It's clearly a winner.
I find it interesting that so many "economic pundits" haven't focused on the real reason the US stock market has moved up so markedly in the past couple of months. It's all about the "smart money" making the objective assessment that Obama's three-pronged economic plan is a clear winner. The really smart money doesn't bias its economic assessments by Party politics. It just coldly looks at the facts and makes honest interpretations of the economic impact. That's why it's called "smart money".
However, even though the Obama economic team's three-pronged economic initiative is clearly superb, it doesn't mean it can't be improved. The really smart money knows that Obama is open to excellent ideas from anyone, including from Republicans, to make his economic plan even better. And anytime it comes to money, Republican interest is sparked, and they do have some really good ideas for effective job creation.
As for me, when you have a Great Recession, that has continued unabated for such a long time, I think it is far better to risk overstimulating the US economy, rather than continuing to understimulate it. Since there is so much additional funding here from this tax deposits on IRS open RARs funding vehicle, I would consider the following additions to bolster even further Obama's already very wise three-pronged economic plan:
…..Massive additional green energy tax credits
…..Additional infrastructure investments above the $50 bil, with a clear green emphasis
…..Much more accelerated tax depreciation on both new and existing manufacturing facilities. One way to do this would be to have the first ten years of tax depreciation under the present tax rules to be 100% tax deducted in the first year. And then you could reduce the number of years for all tax deprecation after ten years presently. Such an approach yields substantial accelerated tax depreciation of manufacturing building costs, but with very little, if any, CBO scored cost.
…..Higher tax incentives for building and building improvements in the Gulf Area impacted by either Katrina or by the BP Oil spill. Included here would be rental property, lodging, retail, restaurant, and entertainment facility improvement costs.
...Businesses should get very healthy tax credits for hiring military veterans, for hiring the very long-term unemployed, and for hiring anyone where it can clearly be determined that the job has been backshored (i.e. job shipped back from overseas to the US). However, there should be job retention requirements by the businesses granted this tax credit, or else this upfront tax credit is subsequently recaptured by the US government.
...Massive reductions of loan principal balances of mortgage loans for principal home residences that are either underwater or only 10% above water. The US government infrastructure bank would pay fair market value for the portion of the loan balance of all first, second, and higher mortgage loans held by any financial institution, including those held by Fannie Mae and Freddie Mac, where the total principal loan balance, at all financial institutions, of a home is 90% or more of the fair market value of the home. The US infrastructure bank would write down to its purchase price the mortgage loan principal balance of these partial loans bought from financial institutions. The US infrastructure bank should start this mortgage partial loan acquisition program with underwater mortgages in States which have the highest percentage of underwater mortgages: Florida, Nevada and California. Financial institutions selling these partial loans to the US infrastructure bank would be given tax incentives (for instance, faster loan loss tax deductions). Smaller financial institutions selling these partial loans to the US infrastructure bank will be granted additional tax incentives for selling a portion of its loan principals on these homeowner loans. Fannie Mae and Freddie Mac should be recapitalized, with the necessary capital infusions, in such a way that they will be financially viable entities on a stand-alone basis. The CBO scoring of the US government infrastructure bank should be markedly positive since the subsequent interest income will substantially trump the subsequent loan losses, as long as the loans that the US infrastructure bank buys are set at maturities of ten years or less. Long-term US Real GDP growth, long-term unemployment and underemployment, and the US Debt five and ten years out will all not be at acceptable levels until this horrible underwater home mortgage problem is fixed. Just continuing to patch this immense problem does not work.
...To help solve, on a long-term basis, the horrible Shipping of US Jobs Overseas, if a US Corp accumulates an Unremitted Foreign Earnings amount in excess of a certain amount (perhaps, of in excess of say $15 bil to $25 bil...people a lot smarter than me can figure out the best amount here), for US federal income tax purposes, a foreign earnings repatriation to the US of this excess amount would automatically be triggered, with the resultant US federal income tax paid.
Sunday, October 17, 2010
Evansville Courier Unfair to Trent Van Haaften in Indiana Bloody 8th Race with Dr. Larry Bucshon
I think the most important issue in the US House of Representatives race in Indiana's Bloody 8th District is that very wealthy heart surgeon Dr. Bucshon plans to drastically reduce the corporate US federal income tax rate of large US Multinational Corps from 35% to 20%, or by 43%.
I think any candidate, who takes such a financially naive, mean-spirited stance, so detrimental to the country's finances and so unabashedly against the clear majority of US citizens, has no business being in the US House of Representatives.
What this tax plan does is to substantially increase the US Deficit, to reward these large US Corps for their abhorrent behavior, including their past massive offshoring of US jobs, and to also create a huge incentive for Big US Corps to ship even more US jobs overseas in the future. This past greedy, risky Big US Corp behavior played a large part in creating the 2000s Lost Decade, which caused the many disastrous financial aftershocks the country now faces.
Let me briefly show just how silly Bucshon's tax slashing plan on large US Multinational Corps is.
At the end of 2009, all US Corps had $1.6 trillion of most low-taxed Unremitted Foreign Earnings...that is, cumulative foreign earnings, due in large part to shipping US jobs overseas, that are still parked in Cash and Investments overseas. And these Unremitted Foreign Earnings continue to grow like weeds, to the horrible financial detriment to the US economy and to many of its citizens.
Presently, as a starting point, a US Corp gets federal income taxed at 35% on its grossed-up foreign earnings that are repatriated back to the US.
However, because of Bucshon's tax plan, these foreign earnings repatriated would now be taxed at a much lower 20%, as a starting point.
My quick, back-of-the-envelope computation estimates that the windfall tax savings to Big US Corps due to Dr. Bucshon's tax proposal here on an early 2011 foreign earnings repatriation by all US Corps to be in the range of $250 bil to $350 bil. Whew!
And with Bucshon's tax proposal, Big US Corps have even more of an incentive to offshore US jobs in the future, since they know they'll get the lower labor costs offshore, and now they'll also be able to repatriate these foreign earnings at a 15% lower US federal income tax rate.
In addition to the substantial tax savings Big US Corps will get from the lower-taxed foreign earnings repatriation explained above, these Big US Corps will also get substantial annual federal income tax cuts on their future continuing huge annual worldwide profits.
I have no problem with the Evansville Courier endorsing someone for office, although I think its credibility would be helped if they spelled the candidate's name correctly....it's Bucshon, not Buschon, which the Evansville Courier repeatly states in its today's Editorial endorsement of Dr. Bucshon.
What I do have a major problem with is that in supporting its position for Bucshon, the Evansville Courier avoided the very salient fact that Bucshon plans to dramatically cut the corporate US federal income tax rate for all US businesses, both large and small.
The Evansville Courier only stated that Bucshon plans to cut the corporate income tax rates on small businesses, and avoided any mention of what Bucshon plans to do with large US Multinational Corps....where in fact he wants the same 43% tax rate cut, from 35% to 20%. You can clearly see that in Bucshon for Congress online "Full Plan" on Page 3 under the 2) Immediate and Permanent Tax Relief: Lower the Business Tax Rate Immediately.
The Evansville Courier either did shoddy research in not looking at Bucshon's Full Plan, or it did review it and still decided to conveniently not report it. Either way, the Evansville Courier needs to come clean here. What it did was grossly unfair to Trent Van Haaften, and to all 8th District Voters, who want to be informed on the key issues in this critical election, not misinformed. Van Haaften, an exceptionally bright former Prosecutor, knows Bucshon's Big US Multinational Corp tax slashing plan is ill conceived.
If the Bucshon campaign acted ethically, they would point out the Evanville Courier's serious error here. Let's see just how they act, it will give a good insight into how they will govern, if they end up winning the Bloody 8th Election.
I think any candidate, who takes such a financially naive, mean-spirited stance, so detrimental to the country's finances and so unabashedly against the clear majority of US citizens, has no business being in the US House of Representatives.
What this tax plan does is to substantially increase the US Deficit, to reward these large US Corps for their abhorrent behavior, including their past massive offshoring of US jobs, and to also create a huge incentive for Big US Corps to ship even more US jobs overseas in the future. This past greedy, risky Big US Corp behavior played a large part in creating the 2000s Lost Decade, which caused the many disastrous financial aftershocks the country now faces.
Let me briefly show just how silly Bucshon's tax slashing plan on large US Multinational Corps is.
At the end of 2009, all US Corps had $1.6 trillion of most low-taxed Unremitted Foreign Earnings...that is, cumulative foreign earnings, due in large part to shipping US jobs overseas, that are still parked in Cash and Investments overseas. And these Unremitted Foreign Earnings continue to grow like weeds, to the horrible financial detriment to the US economy and to many of its citizens.
Presently, as a starting point, a US Corp gets federal income taxed at 35% on its grossed-up foreign earnings that are repatriated back to the US.
However, because of Bucshon's tax plan, these foreign earnings repatriated would now be taxed at a much lower 20%, as a starting point.
My quick, back-of-the-envelope computation estimates that the windfall tax savings to Big US Corps due to Dr. Bucshon's tax proposal here on an early 2011 foreign earnings repatriation by all US Corps to be in the range of $250 bil to $350 bil. Whew!
And with Bucshon's tax proposal, Big US Corps have even more of an incentive to offshore US jobs in the future, since they know they'll get the lower labor costs offshore, and now they'll also be able to repatriate these foreign earnings at a 15% lower US federal income tax rate.
In addition to the substantial tax savings Big US Corps will get from the lower-taxed foreign earnings repatriation explained above, these Big US Corps will also get substantial annual federal income tax cuts on their future continuing huge annual worldwide profits.
I have no problem with the Evansville Courier endorsing someone for office, although I think its credibility would be helped if they spelled the candidate's name correctly....it's Bucshon, not Buschon, which the Evansville Courier repeatly states in its today's Editorial endorsement of Dr. Bucshon.
What I do have a major problem with is that in supporting its position for Bucshon, the Evansville Courier avoided the very salient fact that Bucshon plans to dramatically cut the corporate US federal income tax rate for all US businesses, both large and small.
The Evansville Courier only stated that Bucshon plans to cut the corporate income tax rates on small businesses, and avoided any mention of what Bucshon plans to do with large US Multinational Corps....where in fact he wants the same 43% tax rate cut, from 35% to 20%. You can clearly see that in Bucshon for Congress online "Full Plan" on Page 3 under the 2) Immediate and Permanent Tax Relief: Lower the Business Tax Rate Immediately.
The Evansville Courier either did shoddy research in not looking at Bucshon's Full Plan, or it did review it and still decided to conveniently not report it. Either way, the Evansville Courier needs to come clean here. What it did was grossly unfair to Trent Van Haaften, and to all 8th District Voters, who want to be informed on the key issues in this critical election, not misinformed. Van Haaften, an exceptionally bright former Prosecutor, knows Bucshon's Big US Multinational Corp tax slashing plan is ill conceived.
If the Bucshon campaign acted ethically, they would point out the Evanville Courier's serious error here. Let's see just how they act, it will give a good insight into how they will govern, if they end up winning the Bloody 8th Election.
Friday, October 15, 2010
Whirlpool Corp Federal Income Taxes Drop Dramatically Under Dr. Bucshon Tax Plan
One of the key proposals by Dr. Larry Bucshon, the Republican candidate for the US House in Indiana’s Bloody 8th District, is to reduce precipitously the federal income tax rate from 35% to 20% for all corps, big and small. This 43% tax drop, if enacted, would continue annually into perpetuity under Dr. Bucshon’s tax plan, and thus should significantly increase the after-tax earnings, and thus also the stock prices, of large multinational corps, including Whirlpool.
For the many US corps that have shipped tons of US jobs overseas, like Whirlpool has, there is also another additional huge windfall tax benefit under Dr. Bucshon’s tax proposal. Whirlpool has $2.4 bil of Unremitted Foreign Earnings at Dec 31, 2009, which should have increased markedly further in 2010, since it increased by $.6 bil, or by 33%, just in the year 2009. These Unremitted Foreign Earnings relate to Whirlpool’s foreign earnings, due in large part to offshoring of US jobs, that have been taxed at mostly lower foreign tax rates overseas, and have remained overseas. From Whirlpool’s income tax footnotes in its SEC filings, you can see that Whirlpool has gotten substantial foreign tax breaks from its foreign earnings.
These Unremitted Foreign Earnings are not federal income taxed in the US until Whirlpool repatriates these foreign earnings back to the US. It gets a bit complicated since you probably have more than one country involved here where those foreign earnings have been earned and are still parked, since there are some foreign taxes that have been paid locally on these foreign earnings, and since you have to gross up these foreign earnings to compute the taxable dividend income amount for US federal income tax purposes, to get them on a pretax basis, when these foreign earnings are repatriated back to the US.
But when Whirlpool repatriates these foreign earnings to the US, they presently would be federal income taxed in the US at the 35% federal income tax rate, the tax rate other US corps pay.
But by slashing Whirlpool’s federal income tax rate from 35% to 20%, the $2.4 bil plus of foreign earnings can now be repatriated to the US and taxed at a 15% lower tax rate, and thus the windfall tax savings to Whirlpool would be substantial.
Dr. Bucshon’s tax plan is like pouring salt on the wounds of Whirlpool’s laid off workers. They get shafted from losing their jobs, and Whirlpool now gets rewarded further for shafting them. And the windfall tax reward accruing to Whirlpool here under Dr. Bucshon's tax proposal, is not just related to the 1,100 recently laid off employees, but to all Whirlpool employees who have ever been laid off in the past 50 years, since the Unremitted Foreign Earnings of $2.4 bil relates to cumulative foreign earnings since Whirlpool started operations overseas many years ago.
There are many US Senate and US House Republican candidates who are running on the same large US Multinational Corp income tax slashing plans espoused by Dr. Bucshon above. Just to name a few....US Senate candidates Dan Coats in Indiana, Pat Toomey in Pennsylvania, Rob Portman in Ohio, and Linda McMahon in Connecticut. Thus, there would be similar massive windfall tax benefits to large US Multinational Corps from their tax proposals here, but it's a pyrrhic victory for these Big Corps because it's on the backs of laid off workers, whose US jobs were shipped overseas. And it's also on the back of the entire US, which will experience a dramatic increase in the US Deficit from this Big Multinational Corp federal income tax rate slashing plan.
For the many US corps that have shipped tons of US jobs overseas, like Whirlpool has, there is also another additional huge windfall tax benefit under Dr. Bucshon’s tax proposal. Whirlpool has $2.4 bil of Unremitted Foreign Earnings at Dec 31, 2009, which should have increased markedly further in 2010, since it increased by $.6 bil, or by 33%, just in the year 2009. These Unremitted Foreign Earnings relate to Whirlpool’s foreign earnings, due in large part to offshoring of US jobs, that have been taxed at mostly lower foreign tax rates overseas, and have remained overseas. From Whirlpool’s income tax footnotes in its SEC filings, you can see that Whirlpool has gotten substantial foreign tax breaks from its foreign earnings.
These Unremitted Foreign Earnings are not federal income taxed in the US until Whirlpool repatriates these foreign earnings back to the US. It gets a bit complicated since you probably have more than one country involved here where those foreign earnings have been earned and are still parked, since there are some foreign taxes that have been paid locally on these foreign earnings, and since you have to gross up these foreign earnings to compute the taxable dividend income amount for US federal income tax purposes, to get them on a pretax basis, when these foreign earnings are repatriated back to the US.
But when Whirlpool repatriates these foreign earnings to the US, they presently would be federal income taxed in the US at the 35% federal income tax rate, the tax rate other US corps pay.
But by slashing Whirlpool’s federal income tax rate from 35% to 20%, the $2.4 bil plus of foreign earnings can now be repatriated to the US and taxed at a 15% lower tax rate, and thus the windfall tax savings to Whirlpool would be substantial.
Dr. Bucshon’s tax plan is like pouring salt on the wounds of Whirlpool’s laid off workers. They get shafted from losing their jobs, and Whirlpool now gets rewarded further for shafting them. And the windfall tax reward accruing to Whirlpool here under Dr. Bucshon's tax proposal, is not just related to the 1,100 recently laid off employees, but to all Whirlpool employees who have ever been laid off in the past 50 years, since the Unremitted Foreign Earnings of $2.4 bil relates to cumulative foreign earnings since Whirlpool started operations overseas many years ago.
There are many US Senate and US House Republican candidates who are running on the same large US Multinational Corp income tax slashing plans espoused by Dr. Bucshon above. Just to name a few....US Senate candidates Dan Coats in Indiana, Pat Toomey in Pennsylvania, Rob Portman in Ohio, and Linda McMahon in Connecticut. Thus, there would be similar massive windfall tax benefits to large US Multinational Corps from their tax proposals here, but it's a pyrrhic victory for these Big Corps because it's on the backs of laid off workers, whose US jobs were shipped overseas. And it's also on the back of the entire US, which will experience a dramatic increase in the US Deficit from this Big Multinational Corp federal income tax rate slashing plan.
Wednesday, October 13, 2010
Hey Dr. Bucshon, Indiana’s Bloody 8th District Asks....Are You Really One of Us?
In many of his TV ads, US House Republican candidate Dr. Larry Bucshon wears blue jeans, is spending time with his family in a run-of-the-mill Indiana back yard, in a clear attempt to show that he is just a regular Southwest Indiana 8th District guy.
But let’s test that to see if this is a real middle income, blue collar kind of Indiana Bloody 8th District guy. Let me cite just for now a couple of items I discovered about candidate Dr. Bucshon.
…..He is a very gifted heart surgeon, and has been Physician President and Medical Director of Cardiovascular Surgery of Ohio Valley Heartcare (OVHC) since 2003. OVHC has eight locations in three states. OVHC has eleven Cardiovascular Physicians, five Clinical Directors, and six Nurse Practitioners. When I extensively study heart surgeons on the web, my hunch is that a heart surgeon, who is President of this very prosperous, prestigious cardiovascular health care company with such a broad reach, must be averaging probably at least a million dollars a year in his personal total income plus benefits for at least each of the past eight years. In all fairness and in a sense of financial transparency, I think he should disclose to voters the precise amount of his total annual income plus benefits.
.…..He lives in what I would call a just beautiful mansion on Outer Lincoln Drive in Newburgh, a very nice suburb of Evansville. In all fairness, I think he should disclose the fair market value of his home.
…..He lives in the Castle High School District of Newburgh. From very favorable personal experience with two daughters who attended school there, Castle High School is probably one of the best ten public high schools in the State of Indiana, with many exceptional teachers, and with an exceptionally strong and very extensive Advanced Placement program. Castle’s Junior Highs are also very educationally strong schools, with many gifted teachers. I can understand why someone living in Newburgh would have their kids go to the public charter school, Evansville Signature School, one of the best charter schools not just in the State, but also in the country. I also can clearly understand why someone living in Newburgh would have their kids go to Evansville Memorial, a very high quality Catholic high school on Evansville's East Side and not really that far from Newburgh, and with very reasonable tuition. So what school does the Bucshon family decide to attend? Neither of the public schools, Castle or Sig School, but instead the elitist, very expensive Evansville Day School, located way on the other side of town. This is Dr. Bucshon’s idea of public education reform....abandon public schools?
…..He is a strong US Big Multinational Corp supporter, so much so that he wants to reduce the corporate US federal income tax rate on them, along with on all other corps, from 35% to 20% immediately, which is an amazingly high 43% tax reduction. The stated US federal income tax rate on these large US Multinational Corps of 35% is meaningless, since from exhaustive study of SEC annual report filings, the most recent average US federal income tax rate actually paid presently by the roughly 100 largest US Multinational Corps is just under 10%, already a 71% discount to the 35% artificially high stated corporate federal income tax rate. This 71% discount is due mainly to the many huge corporate tax loopholes that many large US Multinational Corps take advantage of, including the very favorable impact of shifting income, along with the related US jobs, overseas. Given that substantially reducing the US federal income tax rate of Big US Corps by an incredible 43% is such an extreme and exceptionally economically-sensitive position, particularly so since it is in addition to the present 71% deeply discounted tax rate, I think it is only fair for voters to know if any of either his or his anesthesiologist wife's personal common stock holdings include, either directly or indirectly, any Big US Corp common stock, or other corp common stock, which would benefit significantly from this 43% reduction in the Federal Income Tax Rate proposal of Dr. Bucshon. Thus, to show that he clearly does not have a conflict of interest on his critical tax proposal here, I think that in a sense of full financial transparency, Dr. Bucshon should disclose to voters the fair market value of each of his and his wife's stock, mutual fund, and other asset holdings, both regular holdings as well as holdings included in any of his or her retirement plans. Voters in Indiana's 8th District value highly financial transparency.....if a candidate proposes a dramatic change in taxes, just how does that effect him personally?
From just all of the above items, I have to conclude that in fact Dr. Bucshon is not one of us...his privileged world is nothing like that of 99% of those in the Bloody 8th District. I am very impressed with all of his life’s accomplishments, but how in the world could he truly know who we in the 8th District are....struggling every day to make ends meet, for the unemployed to find jobs, for the underemployed to find better jobs, for the full-time employed to keep their jobs, for our kids to get the best education they can get at an affordable cost.
On the other hand, Dr. Bucshon's Democratic opponent, Trent Van Haaften, a former prosecutor from Mt. Vernon, is clearly one of us. I have yet to hear anyone say anything bad about this guy. He is very smart, cares deeply about people, and is just a flat out class guy. He can be counted on to serve all of the citizens in the 8th District.
Frankly, I think the majority of Tea Party candidates would understand the essence of who Indiana 8th District people are much better than Dr. Bucshon does.
I also think another good question to ask is whether Todd Young, a wealthy Carmel lawyer, recently carpetbagged to Bloomington, is really one of them in Indiana’s Ninth District. I know much of this Ninth District, getting very familiar with it in the 2008 Presidential Election, and having left more than my share of money at nearby horse race tracks at Churchill Downs and at Louisville Downs over the many years. Also, I have a daughter who recently graduated from the very prestigious Indiana University in Bloomington….she is now in law school in Florida, but her heart is still in Bloomington and at IU…..and she campaigned heavily for Baron Hill, when she was at IU…..and it is very difficult for a candidate to impress her. Unlike Todd Young, Baron Hill has a very clear understanding of the essence of citizens in his Ninth District.....my gosh, this guy Baron Hill was even a basketball star at Seymour High School decades ago.
But let’s test that to see if this is a real middle income, blue collar kind of Indiana Bloody 8th District guy. Let me cite just for now a couple of items I discovered about candidate Dr. Bucshon.
…..He is a very gifted heart surgeon, and has been Physician President and Medical Director of Cardiovascular Surgery of Ohio Valley Heartcare (OVHC) since 2003. OVHC has eight locations in three states. OVHC has eleven Cardiovascular Physicians, five Clinical Directors, and six Nurse Practitioners. When I extensively study heart surgeons on the web, my hunch is that a heart surgeon, who is President of this very prosperous, prestigious cardiovascular health care company with such a broad reach, must be averaging probably at least a million dollars a year in his personal total income plus benefits for at least each of the past eight years. In all fairness and in a sense of financial transparency, I think he should disclose to voters the precise amount of his total annual income plus benefits.
.…..He lives in what I would call a just beautiful mansion on Outer Lincoln Drive in Newburgh, a very nice suburb of Evansville. In all fairness, I think he should disclose the fair market value of his home.
…..He lives in the Castle High School District of Newburgh. From very favorable personal experience with two daughters who attended school there, Castle High School is probably one of the best ten public high schools in the State of Indiana, with many exceptional teachers, and with an exceptionally strong and very extensive Advanced Placement program. Castle’s Junior Highs are also very educationally strong schools, with many gifted teachers. I can understand why someone living in Newburgh would have their kids go to the public charter school, Evansville Signature School, one of the best charter schools not just in the State, but also in the country. I also can clearly understand why someone living in Newburgh would have their kids go to Evansville Memorial, a very high quality Catholic high school on Evansville's East Side and not really that far from Newburgh, and with very reasonable tuition. So what school does the Bucshon family decide to attend? Neither of the public schools, Castle or Sig School, but instead the elitist, very expensive Evansville Day School, located way on the other side of town. This is Dr. Bucshon’s idea of public education reform....abandon public schools?
…..He is a strong US Big Multinational Corp supporter, so much so that he wants to reduce the corporate US federal income tax rate on them, along with on all other corps, from 35% to 20% immediately, which is an amazingly high 43% tax reduction. The stated US federal income tax rate on these large US Multinational Corps of 35% is meaningless, since from exhaustive study of SEC annual report filings, the most recent average US federal income tax rate actually paid presently by the roughly 100 largest US Multinational Corps is just under 10%, already a 71% discount to the 35% artificially high stated corporate federal income tax rate. This 71% discount is due mainly to the many huge corporate tax loopholes that many large US Multinational Corps take advantage of, including the very favorable impact of shifting income, along with the related US jobs, overseas. Given that substantially reducing the US federal income tax rate of Big US Corps by an incredible 43% is such an extreme and exceptionally economically-sensitive position, particularly so since it is in addition to the present 71% deeply discounted tax rate, I think it is only fair for voters to know if any of either his or his anesthesiologist wife's personal common stock holdings include, either directly or indirectly, any Big US Corp common stock, or other corp common stock, which would benefit significantly from this 43% reduction in the Federal Income Tax Rate proposal of Dr. Bucshon. Thus, to show that he clearly does not have a conflict of interest on his critical tax proposal here, I think that in a sense of full financial transparency, Dr. Bucshon should disclose to voters the fair market value of each of his and his wife's stock, mutual fund, and other asset holdings, both regular holdings as well as holdings included in any of his or her retirement plans. Voters in Indiana's 8th District value highly financial transparency.....if a candidate proposes a dramatic change in taxes, just how does that effect him personally?
From just all of the above items, I have to conclude that in fact Dr. Bucshon is not one of us...his privileged world is nothing like that of 99% of those in the Bloody 8th District. I am very impressed with all of his life’s accomplishments, but how in the world could he truly know who we in the 8th District are....struggling every day to make ends meet, for the unemployed to find jobs, for the underemployed to find better jobs, for the full-time employed to keep their jobs, for our kids to get the best education they can get at an affordable cost.
On the other hand, Dr. Bucshon's Democratic opponent, Trent Van Haaften, a former prosecutor from Mt. Vernon, is clearly one of us. I have yet to hear anyone say anything bad about this guy. He is very smart, cares deeply about people, and is just a flat out class guy. He can be counted on to serve all of the citizens in the 8th District.
Frankly, I think the majority of Tea Party candidates would understand the essence of who Indiana 8th District people are much better than Dr. Bucshon does.
I also think another good question to ask is whether Todd Young, a wealthy Carmel lawyer, recently carpetbagged to Bloomington, is really one of them in Indiana’s Ninth District. I know much of this Ninth District, getting very familiar with it in the 2008 Presidential Election, and having left more than my share of money at nearby horse race tracks at Churchill Downs and at Louisville Downs over the many years. Also, I have a daughter who recently graduated from the very prestigious Indiana University in Bloomington….she is now in law school in Florida, but her heart is still in Bloomington and at IU…..and she campaigned heavily for Baron Hill, when she was at IU…..and it is very difficult for a candidate to impress her. Unlike Todd Young, Baron Hill has a very clear understanding of the essence of citizens in his Ninth District.....my gosh, this guy Baron Hill was even a basketball star at Seymour High School decades ago.
Friday, October 8, 2010
Do Big US Corps Pay Too Much US Federal Income Tax?
In extensively reviewing websites of US Senate and US House Republican candidates running in the November 2010 election, I consistently see that a key issue of theirs is to reduce income taxes. And some of these websites specifically focus on the candidate’s position that the US Corporate Federal Income Tax Rate of 35% is way too high and needs to be substantially reduced.
Just to mention a few, US Republican Senate candidates Pat Toomey in Pennsylvania, Linda McMahon in Connecticut, and Dan Coats in Indiana all specifically and prominently mention in their websites that they would like to significantly reduce the US Corporate Federal Income Tax Rate of 35%.
So many Republican candidates assert that Big US Corps are being severely penalized because they are paying way too much US corporate federal income taxes presently, and thus they aren’t able to compete overseas. They further contend that by simply substantially reducing this 35% top US corporate federal income tax rate, somehow magically this will trickle down and create US jobs.
Given the tepid US jobless recovery, coupled with the huge US Government Debt, I think some research on just what these Big US Corps pay in US Corporate Federal Income Taxes is warranted.
Well, the conclusion is pretty clear…Big US Corps aren’t paying too much US Federal Income Tax. In fact, they are paying way too little tax. Let me explain in more detail, with this research coming from an exhaustive study of Big US Corp SEC filings.
I first studied the 30 Dow Industrial companies. From their annual report income tax footnotes, here’s the US Current Federal Corporate Income Tax Paid or Payable in the Current Year as compared with their Worldwide Pretax Income in total for each of the most recent five years for all 30 Dow companies, except for Pfizer in 2009, because it had a huge foreign earnings repatriation in connection with its acquisition of Wyeth in that year:
2005…..16.9%
2006…..15.6%
2007…..14.7%
2008…..10.5%
2009….. 7.8%
Yeah, these Big US Dow Industrial Corps are not paying anywhere near 35%. In fact, in the most recent year 2009, the US Federal Income Tax Rate they are paying is only 22% of the 35% statutory federal tax rate, or a paltry 7.8%. And look at the above incredible trend…in just the three most recent years, this effective tax rate has been cut precisely in half from 15.6% in 2006 to only 7.8% in 2009.
This downward effective tax rate trend looks to me like Arne Duncan’s Education Race to the Top in reverse….thus, I’ll call it the Big US Corp Race to the Bottom…..or who can pay the lowest effective tax rate to the US government.
Of the 30 Dow Industrial companies, 43% of them, or 13, paid a US federal income effective tax rate of less than 9% each for the most recent two years (2008 and 2009). Let me present the individual winning (?) companies in this Race to the Bottom:
…………………………..........2008-09.....2008-09…...2008-09
…………………………........US Current……………..…...US Current
……………………………........Federal……Worldwide……Federal
…………………………........Income Tax…Pretax………Effective
…………………………….......Expense……Income……...Tax Rate
……………………………......(Benefit)
…………………………….......(in millions of dollars)
#13…Procter & Gamble…..2,727………30,957………… 8.8%
#12…Coca Cola…………......1,199……….16,452………… 7.3%
#11…United Technologies….815……….12,696………… 6.4%
#10…Chevron……………....3,007……….61,585………… 4.9%
# 9…Caterpillar…………....... 230………...5,070………… 4.5%
# 8…Merck………………........ 999………..25,224………… 4.0%
# 7…IBM…………………......... 811………..34,853………… 2.3%
# 6…Hewlett Packard…….... 452……….19,888…………. 2.3%
#..5…Exxon Mobil………....2,167……..118,174…………. 1.8%
# 4…Dupont………………….......37………..4,575……………0.8%
# 3…Verizon……………….....(246)……..27,482…………..(0.9)%
# 2…Boeing……………….........(88)……….5,726…………..(1.5)%
# 1…GE…………………........(1,609)……..30,126………….(5.3)%
Total Above 13 Cos………10,501…….392,808……………2.7%
Yeah, that’s right, 13 of the 30 Dow Industrial companies had a total US Corporate effective federal tax rate in the most recent two years of an incredibly low 2.7%, which is 92% below the statutory US Federal Income Tax Rate of 35%.
And it’s not just the large Dow Industrial companies. From their annual report income tax footnotes, here’s the US Current Federal Corporate Income Tax Paid or Payable in the Current Year as compared with their Worldwide Pretax Income in total for the most recent three fiscal years for 141 large non-Dow companies, which each had Worldwide Pretax Income above $3 bil in total for the most recent three years, with also a couple more companies added, where I had a local interest:
FYE 2007-8…..20.3%
FYE 2008-9…..19.3%
FYE 2009-10…13.8%
Of these large 141 non-Dow Industrial companies, 43 of them, or 30.5%, paid an effective US federal income tax rate of less than 10% for the most recent two fiscal years (2008-9 and 2009-10). And as you can see from the below 43 companies, 12 of them were Big Oil companies. Let me present the individual winning (?) companies in this Race to the Bottom:
…………………………................Most Recent Two Fiscal Year Ends
……………………………...........US Current……………..…...US Current
………………………………..........Federal……Worldwide……Federal
……………………………...........Income Tax…..Pretax………Effective
………………………………..........Expense…….Income………Tax Rate
……………………………….........(Benefit)
……………………………….........(in millions of dollars)
#43…Occidental Petroleum…..1,574………16,040…………..9.8%
#42…Accenture………………........567………..5,786…………. 9.8%
#41…Praxair…………………….......305………...3,127…………..9.8%
#40…ConocoPhillips…………....3,820……..39,362***…..….9.7%
#39…Kimberly Clark………….......463………..4,865…………...9.5%
#38…Air Products&Chemicals....220………..2,316…………...9.5%
#37…Spectra Energy………….......275………..2,959…………...9.3%
#36…Qualcomm………………........524………..5,902…………...8.9%
#35…Loews…………………….........198………...2,317…………...8.5%
#34…PNC Financial……………......364………..4,319…………...8.4%
#33…XTO Energy…………….........473*………6,189…………...7.6%
#32…Ensco……………………..........178*………2,356…………...7.6%
#31…Honeywell……………….........466……….6,799……………6.9%
#30…Marathon………………….......697……...10,192……………6.8%
#29…Bristol Myers Squibb……....692*…....10,378……………6.7%
#28…Mosaic…………………….........261………..4,096……………6.4%
#27…Omnicom Group………….....160………..2,889……………5.5%
#26…Applied Materials…………......51………….923……………5.5%
#25…Yum Brands……………….......147……….2,687……………5.5%
#24…Western Digital…………….......94……….2,021……………4.7%
#23…Phillip Morris Intl…………....818………19,180……………4.3%
#22…AON………………………............76………..1,828……………4.2%
#21…Dow Chemical…………….........68………..1,746…………....3.9%
#20…Whirlpool…………………..........19…………..540……………3.5%
#19…EOG Resources………….........146………...4,619……………3.2%
#18…Schlumberger…………….......262……….10,786……………2.4%
#17…Heinz………………...................49………...2,610……………1.9%
#16…Weatherford………………........33*…….....1,989……………1.7%
#15…Baxter……………………….........67………...5,196…………….1.3%
#14…Cummins……………….............20*……….1,818……………..1.1%
#13…Hess………………………............49………...6,219……………..0.8%
#12…FedEx………………………............1………..2,571……………..0.0%
#11…Corning……………………...........(4)……….4,816…………….(0.1)%
#10…Apache……………………...........(2)……….1,258…………….(0.2)%
# 9…Newmont Mining…………......(67)…….....4,165…………….(1.6)%
# 8…Southern Copper………….......(65)*…......3,498……………(1.9)%
# 7…Avon Products…………….......(64)………..2,165……………(3.0)%
# 6…Eli Lilly…………………........... (162)……….4,050…………….(4.0)%
# 5…Paccar……………………..........(127)……….1,639…………….(7.7)%
# 4…Wells Fargo…………….......(1,909)**…..21,298……………(9.0)%
# 3…Halliburton………………........(531)……….5,531…………….(9.6)%
# 2…DirecTV…………………..........(851)……….4,305……………(19.8)%
# 1…Prudential Financial……......(329)…………430……………(75.3)%
Total Above 43 Cos…………….....9,031……247,780…….........3.6%
*also includes State Income Tax
**appears to also include tax benefits from IRS Audit Settlements
***excludes large asset impairments
So what’s with these extremely low effective US federal income tax rates? It’s mainly the shifting of income, along with the related US jobs offshored, to international tax havens. These Big US Multinational Corps set up in the many tax havens like China, Ireland, and Puerto Rico. They are clearly aware on the front end that to get their hands on the massive amount of low-taxed foreign earnings, hoarded in cash and investments in these tax havens, they will have to eventually pay federal income taxes in the US at 35%, like other US Corps.
And then these Big US Multinational Corps have their fingers crossed that sometime in the future, the US Congress will forgive 85% of this federal income tax owed upon their foreign earnings repatriation, as the US Congress amazingly did in 2004, when all US Congressional Republicans voted for it. Just think how crazy this is….. it’s like a US taxpayer having magically 85% of his federal income taxes paid for many years related to his W-2 earnings refunded to him, like he won a huge lottery….fat chance for that to happen…..there’s no equivalent lobbying group acting on his behalf.
And this lower effective US federal income tax rate is also due to the tons of Big Corp tax loopholes that bring the artificially high stated US corporate income tax rate of 35% down frequently to a single-digit effective tax rate actually paid, and sometimes even down to an effective tax rate below zero.
These extremely low effective tax rates are also due to the 50% bonus tax depreciation in the US in 2008 and 2009. And did the US get any job creation from this very lucrative 50% bonus tax depreciation granted to these Big US Corps? No way. If the US government permits 100% expensing of Plant and Equipment by these Big US Corps, the US job creation won’t trickle down. If you want to create US jobs, the US government should allow Big US Corps to get this effectively 100% bonus depreciation only if there are clear requirements to also sufficiently increase US full-time payroll counts by these Big US Corps on the front end, accompanied by subsequent retention requirements of these payroll count increases.
I really can’t understand how so many Big US Multinational Corps think that it is OK to pay such an incredibly low federal effective tax rate to the US Government. These companies, their Board of Directors, their executives, their non-executive employees, and their stockholders all get the massive benefits from all of these very costly services provided by the US Government, and they think it is perfectly acceptable to pay such meager amounts for these services, and in some cases, the US Government even pays these Big US Multinational Corps for providing them of all of these services, such as military protection, homeland security, and tons of others.
Given the incredibly low effective federal income tax rates paid by Big US Corps presently, I think it is really silly for any candidate to assert that he wants to reduce the Corporate US Federal Income Tax Rate. This candidate is either very financially naïve, or he is showing his clear allegiance to Big Multinational Corps over his allegiance to the country and to its many desperate US citizens. This just isn’t right and US citizens must wisely vote against these candidates.
Just to mention a few, US Republican Senate candidates Pat Toomey in Pennsylvania, Linda McMahon in Connecticut, and Dan Coats in Indiana all specifically and prominently mention in their websites that they would like to significantly reduce the US Corporate Federal Income Tax Rate of 35%.
So many Republican candidates assert that Big US Corps are being severely penalized because they are paying way too much US corporate federal income taxes presently, and thus they aren’t able to compete overseas. They further contend that by simply substantially reducing this 35% top US corporate federal income tax rate, somehow magically this will trickle down and create US jobs.
Given the tepid US jobless recovery, coupled with the huge US Government Debt, I think some research on just what these Big US Corps pay in US Corporate Federal Income Taxes is warranted.
Well, the conclusion is pretty clear…Big US Corps aren’t paying too much US Federal Income Tax. In fact, they are paying way too little tax. Let me explain in more detail, with this research coming from an exhaustive study of Big US Corp SEC filings.
I first studied the 30 Dow Industrial companies. From their annual report income tax footnotes, here’s the US Current Federal Corporate Income Tax Paid or Payable in the Current Year as compared with their Worldwide Pretax Income in total for each of the most recent five years for all 30 Dow companies, except for Pfizer in 2009, because it had a huge foreign earnings repatriation in connection with its acquisition of Wyeth in that year:
2005…..16.9%
2006…..15.6%
2007…..14.7%
2008…..10.5%
2009….. 7.8%
Yeah, these Big US Dow Industrial Corps are not paying anywhere near 35%. In fact, in the most recent year 2009, the US Federal Income Tax Rate they are paying is only 22% of the 35% statutory federal tax rate, or a paltry 7.8%. And look at the above incredible trend…in just the three most recent years, this effective tax rate has been cut precisely in half from 15.6% in 2006 to only 7.8% in 2009.
This downward effective tax rate trend looks to me like Arne Duncan’s Education Race to the Top in reverse….thus, I’ll call it the Big US Corp Race to the Bottom…..or who can pay the lowest effective tax rate to the US government.
Of the 30 Dow Industrial companies, 43% of them, or 13, paid a US federal income effective tax rate of less than 9% each for the most recent two years (2008 and 2009). Let me present the individual winning (?) companies in this Race to the Bottom:
…………………………..........2008-09.....2008-09…...2008-09
…………………………........US Current……………..…...US Current
……………………………........Federal……Worldwide……Federal
…………………………........Income Tax…Pretax………Effective
…………………………….......Expense……Income……...Tax Rate
……………………………......(Benefit)
…………………………….......(in millions of dollars)
#13…Procter & Gamble…..2,727………30,957………… 8.8%
#12…Coca Cola…………......1,199……….16,452………… 7.3%
#11…United Technologies….815……….12,696………… 6.4%
#10…Chevron……………....3,007……….61,585………… 4.9%
# 9…Caterpillar…………....... 230………...5,070………… 4.5%
# 8…Merck………………........ 999………..25,224………… 4.0%
# 7…IBM…………………......... 811………..34,853………… 2.3%
# 6…Hewlett Packard…….... 452……….19,888…………. 2.3%
#..5…Exxon Mobil………....2,167……..118,174…………. 1.8%
# 4…Dupont………………….......37………..4,575……………0.8%
# 3…Verizon……………….....(246)……..27,482…………..(0.9)%
# 2…Boeing……………….........(88)……….5,726…………..(1.5)%
# 1…GE…………………........(1,609)……..30,126………….(5.3)%
Total Above 13 Cos………10,501…….392,808……………2.7%
Yeah, that’s right, 13 of the 30 Dow Industrial companies had a total US Corporate effective federal tax rate in the most recent two years of an incredibly low 2.7%, which is 92% below the statutory US Federal Income Tax Rate of 35%.
And it’s not just the large Dow Industrial companies. From their annual report income tax footnotes, here’s the US Current Federal Corporate Income Tax Paid or Payable in the Current Year as compared with their Worldwide Pretax Income in total for the most recent three fiscal years for 141 large non-Dow companies, which each had Worldwide Pretax Income above $3 bil in total for the most recent three years, with also a couple more companies added, where I had a local interest:
FYE 2007-8…..20.3%
FYE 2008-9…..19.3%
FYE 2009-10…13.8%
Of these large 141 non-Dow Industrial companies, 43 of them, or 30.5%, paid an effective US federal income tax rate of less than 10% for the most recent two fiscal years (2008-9 and 2009-10). And as you can see from the below 43 companies, 12 of them were Big Oil companies. Let me present the individual winning (?) companies in this Race to the Bottom:
…………………………................Most Recent Two Fiscal Year Ends
……………………………...........US Current……………..…...US Current
………………………………..........Federal……Worldwide……Federal
……………………………...........Income Tax…..Pretax………Effective
………………………………..........Expense…….Income………Tax Rate
……………………………….........(Benefit)
……………………………….........(in millions of dollars)
#43…Occidental Petroleum…..1,574………16,040…………..9.8%
#42…Accenture………………........567………..5,786…………. 9.8%
#41…Praxair…………………….......305………...3,127…………..9.8%
#40…ConocoPhillips…………....3,820……..39,362***…..….9.7%
#39…Kimberly Clark………….......463………..4,865…………...9.5%
#38…Air Products&Chemicals....220………..2,316…………...9.5%
#37…Spectra Energy………….......275………..2,959…………...9.3%
#36…Qualcomm………………........524………..5,902…………...8.9%
#35…Loews…………………….........198………...2,317…………...8.5%
#34…PNC Financial……………......364………..4,319…………...8.4%
#33…XTO Energy…………….........473*………6,189…………...7.6%
#32…Ensco……………………..........178*………2,356…………...7.6%
#31…Honeywell……………….........466……….6,799……………6.9%
#30…Marathon………………….......697……...10,192……………6.8%
#29…Bristol Myers Squibb……....692*…....10,378……………6.7%
#28…Mosaic…………………….........261………..4,096……………6.4%
#27…Omnicom Group………….....160………..2,889……………5.5%
#26…Applied Materials…………......51………….923……………5.5%
#25…Yum Brands……………….......147……….2,687……………5.5%
#24…Western Digital…………….......94……….2,021……………4.7%
#23…Phillip Morris Intl…………....818………19,180……………4.3%
#22…AON………………………............76………..1,828……………4.2%
#21…Dow Chemical…………….........68………..1,746…………....3.9%
#20…Whirlpool…………………..........19…………..540……………3.5%
#19…EOG Resources………….........146………...4,619……………3.2%
#18…Schlumberger…………….......262……….10,786……………2.4%
#17…Heinz………………...................49………...2,610……………1.9%
#16…Weatherford………………........33*…….....1,989……………1.7%
#15…Baxter……………………….........67………...5,196…………….1.3%
#14…Cummins……………….............20*……….1,818……………..1.1%
#13…Hess………………………............49………...6,219……………..0.8%
#12…FedEx………………………............1………..2,571……………..0.0%
#11…Corning……………………...........(4)……….4,816…………….(0.1)%
#10…Apache……………………...........(2)……….1,258…………….(0.2)%
# 9…Newmont Mining…………......(67)…….....4,165…………….(1.6)%
# 8…Southern Copper………….......(65)*…......3,498……………(1.9)%
# 7…Avon Products…………….......(64)………..2,165……………(3.0)%
# 6…Eli Lilly…………………........... (162)……….4,050…………….(4.0)%
# 5…Paccar……………………..........(127)……….1,639…………….(7.7)%
# 4…Wells Fargo…………….......(1,909)**…..21,298……………(9.0)%
# 3…Halliburton………………........(531)……….5,531…………….(9.6)%
# 2…DirecTV…………………..........(851)……….4,305……………(19.8)%
# 1…Prudential Financial……......(329)…………430……………(75.3)%
Total Above 43 Cos…………….....9,031……247,780…….........3.6%
*also includes State Income Tax
**appears to also include tax benefits from IRS Audit Settlements
***excludes large asset impairments
So what’s with these extremely low effective US federal income tax rates? It’s mainly the shifting of income, along with the related US jobs offshored, to international tax havens. These Big US Multinational Corps set up in the many tax havens like China, Ireland, and Puerto Rico. They are clearly aware on the front end that to get their hands on the massive amount of low-taxed foreign earnings, hoarded in cash and investments in these tax havens, they will have to eventually pay federal income taxes in the US at 35%, like other US Corps.
And then these Big US Multinational Corps have their fingers crossed that sometime in the future, the US Congress will forgive 85% of this federal income tax owed upon their foreign earnings repatriation, as the US Congress amazingly did in 2004, when all US Congressional Republicans voted for it. Just think how crazy this is….. it’s like a US taxpayer having magically 85% of his federal income taxes paid for many years related to his W-2 earnings refunded to him, like he won a huge lottery….fat chance for that to happen…..there’s no equivalent lobbying group acting on his behalf.
And this lower effective US federal income tax rate is also due to the tons of Big Corp tax loopholes that bring the artificially high stated US corporate income tax rate of 35% down frequently to a single-digit effective tax rate actually paid, and sometimes even down to an effective tax rate below zero.
These extremely low effective tax rates are also due to the 50% bonus tax depreciation in the US in 2008 and 2009. And did the US get any job creation from this very lucrative 50% bonus tax depreciation granted to these Big US Corps? No way. If the US government permits 100% expensing of Plant and Equipment by these Big US Corps, the US job creation won’t trickle down. If you want to create US jobs, the US government should allow Big US Corps to get this effectively 100% bonus depreciation only if there are clear requirements to also sufficiently increase US full-time payroll counts by these Big US Corps on the front end, accompanied by subsequent retention requirements of these payroll count increases.
I really can’t understand how so many Big US Multinational Corps think that it is OK to pay such an incredibly low federal effective tax rate to the US Government. These companies, their Board of Directors, their executives, their non-executive employees, and their stockholders all get the massive benefits from all of these very costly services provided by the US Government, and they think it is perfectly acceptable to pay such meager amounts for these services, and in some cases, the US Government even pays these Big US Multinational Corps for providing them of all of these services, such as military protection, homeland security, and tons of others.
Given the incredibly low effective federal income tax rates paid by Big US Corps presently, I think it is really silly for any candidate to assert that he wants to reduce the Corporate US Federal Income Tax Rate. This candidate is either very financially naïve, or he is showing his clear allegiance to Big Multinational Corps over his allegiance to the country and to its many desperate US citizens. This just isn’t right and US citizens must wisely vote against these candidates.
Wednesday, October 6, 2010
Let’s Really Embolden US Research: The Bonus College Research Tax Credit
The world, especially China, is closing the gap on the US research and technology advantage.
The quality of US K-12 Education has declined precipitously and the Obama Administration has some high quality initiatives on this.
On higher education, the US no longer leads the world in the percentage of college graduates. The Obama Administration also has some fine initiatives here, particularly with the substantial increase in both Pell grants and Education Tax Credits.
On the positive side, the overall quality of US higher education still is unparalleled. The two authoritative sources in evaluating the world’s universities are the London Times Higher Education World University Rankings and the Shanghai Jiaotong University’s Academic Rankings of World Universities. Both of these rankings are done annually.
In the 2010 rankings, the US universities did extremely well. In the 2010 London Times rankings, 7 of the top 10 universities were in the US, 15 of the top 20 were in the US, and 53 of the top 100 were in the US. In comparison, in the 2004 London Times rankings, a much lower 35 of the top 100 were in the US.
In the Shanghai Jiaotong’s 2010 rankings, 8 of the top 10 world universities were in the US, 17 of the top 20 were in the US, and 54 of the top 100 were in the US. In comparison, in the 2004 Shanghai Jiaotong’s rankings, 51 of the top 100 were in the US.
With the substantial decline of the US economy in the 2000s decade, it is particularly important that the US retain this prestige world university status. Thus, I think there should be a big push to keep, and even add to, this US competitive advantage.
I think by far the most effective way for the US to retain, and hopefully even better, this research education advantage is to offer very attractive incentives for the very best young, creative US minds to enter the very best US research universities, objectively measured.
Thus, I think the country should consider a Bonus College Research Tax Credit initiative. Thus, US taxpayers would be granted, for individual federal income tax purposes, an additional education tax credit each year as a certain percentage of tuition paid, not funded by grants, scholarships or fellowships, above some minimum amount, such as in excess of $10,000. But this Bonus Tax Credit would only be for this tuition above $10,000 paid to the finest US research universities.
In determining which US research universities qualify, I would use the two premier worldwide ranking organizations mentioned earlier, the London Times and the Shanghai Jiaotong University.
These Bonus Tax Credits for a given year would only be given to taxpayers paying this tuition above $10,000 to a world class US research university ranked in the top 100 in the most recent year by both the London Times and by the Shanghai Jiaotong University.
So clearly, US universities will be highly motivated to step up their education quality even more and be ranked in the top 100, because they will then get even better quality students, whose related US taxpayers paying the tuition will be awarded nice Bonus Tax Credits.
And to make it even more of an attractive incentive in this Race to the US Higher Education Research Top, I would have the tax credit percentages granted be much higher for the higher ranked US universities ranked in the top 100. Thus there is a highly-charged incentive to move up the ranks by improving the education quality of the US research university.
I would consider tax credit percentages something like this:
Average of Two Rankings….Tax Credit %
Top 1-5………..........................15%
5.5-10……………………………......14%
10.5-15……………………………....13%
15.5-20……………………………....12%
20.5-25……………………………....11%
25.5-30……………………………....10%
30.5-35……………………………......9%
35.5-40……………………………......8%
40.5-45……………………………......7%
45.5-50……………………………......6%
50.5-60……………………………......5%
60.5-70……………………………......4%
70.5-80……………………………......3%
80.5-90……………………………......2%
90.5-100……………………………....1%
Thus, say a Seattle, Las Vegas, or Denver area student decides to attend the cream of the research crop on the West Coast like Cal-Berkeley, Stanford, or Caltech, which all are in the top 5 rankings. Then assume this student and/or his parents pay out-of-state tuition to Cal-Berkeley, or private tuition to Stanford or Caltech, of say $40,000. This taxpayer would be get a Bonus Research College Tax Credit of $4,500, or ($40,000 – $10,000) X 15%, in the current year.
Then, say a Chicago area student decides to attend the prestigious, private University of Chicago, which has an average ranking of 10.5. Let's assume this student or his parents pay $40,000 of tuition. This taxpayer would get a Bonus Tax Credit of $3,900, or ($40,000 - $10,000) X 13%. Likewise, a Chicago area student could decide to attend the pretty close-by, exceptionally-strong University of Wisconsin. Even though this Chicago student pays out-of-state tuition here, this will be softened some by a very nice Bonus Tax Credit. Also, a Chicago area student or a Milwaukee area student could also benefit from the Bonus Tax Credit by attending the nearby, very high quality Northwestern University.
And then just like the Chicago area student going to the University of Chicago above, if a Philly area student, New York area student, or Boston area student decides to attend close-by superb private universities like the University of Penn, Columbia, Cornell, Princeton, Yale, MIT or Harvard, a very healthy Bonus Tax Credit will result.
Also, in the case of the University of Chicago and Yale, these schools, both at an average ranking of 10.5, are just missing a higher ranking, with the resultant higher Bonus Tax Credits for many students. Thus, they are highly energized to bump up their 10.5 average ranking to at least 10.0.
And if you wanted to make it even more of an incentive, you just increase the tax credit percentages. Frankly, I would...and markedly so....the long-term payback to the country will be off the charts.
There are 40 world-class US universities that are ranked in the top 100 in 2010 by both the London Times and by the Shanghai Jiaotong University. Here are the average rankings of these 40:
Harvard………….....1.0
MIT………………......3.5
Stanford………….....3.5
Caltech…………......4.0
Cal-Berkeley……....5.0
Princeton……….....6.0
Chicago…………....10.5
Yale……………......10.5
UCLA………….......12.0
Columbia………....13.0
Cornell………….....13.0
Johns Hopkins…..15.5
Penn……………......17.0
Michigan………......18.5
U of Washington...19.5
Cal-San Diego…....23.0
Northwestern…...27.0
Illinois…………......29.0
Duke……………......29.5
Wisconsin……......30.0
Cal-Santa Barbara.30.5
Wash U -St Louis..34.0
North Carolina…..35.5
Carnegie Mellon...39.0
Minnesota………...40.0
NYU…………….......45.5
Cal-Irvine………....47.5
Cal-Davis………......50.0
Colorado………......50.0
Vanderbilt………...52.0
Southern Cal........59.5
Pittsburgh………....60.0
Brown………….......60.0
Ohio State…….......62.5
Maryland……….....67.0
Boston U………......68.0
Rice……………........73.0
Case Western….....81.0
Virginia……….......84.0
Arizona……….......86.5
To make these world class research universities even better, I also would not let any university be eligible unless both its legacy percentages are below a certain minimum percentage, and its minority group percentages are above a certain minimum percentage.
Making the Business Research Tax Credit permanent will make US businesses much more competitive in the world economy. I think by adding this Bonus College Research Tax Credit, the permanent Business Research Tax Credit will be substantially more effective, in the long run, in giving US businesses a clear edge in competing in the world economy. But this Bonus College Research Tax Credit will also do something much more….it will substantially improve the standard of living and health of all peoples around the world.
And in the long run, I say Bonus College Research Tax Credit will be monumentally more effective to the US economy than Bonus Tax Depreciation for Big US Corps.
The quality of US K-12 Education has declined precipitously and the Obama Administration has some high quality initiatives on this.
On higher education, the US no longer leads the world in the percentage of college graduates. The Obama Administration also has some fine initiatives here, particularly with the substantial increase in both Pell grants and Education Tax Credits.
On the positive side, the overall quality of US higher education still is unparalleled. The two authoritative sources in evaluating the world’s universities are the London Times Higher Education World University Rankings and the Shanghai Jiaotong University’s Academic Rankings of World Universities. Both of these rankings are done annually.
In the 2010 rankings, the US universities did extremely well. In the 2010 London Times rankings, 7 of the top 10 universities were in the US, 15 of the top 20 were in the US, and 53 of the top 100 were in the US. In comparison, in the 2004 London Times rankings, a much lower 35 of the top 100 were in the US.
In the Shanghai Jiaotong’s 2010 rankings, 8 of the top 10 world universities were in the US, 17 of the top 20 were in the US, and 54 of the top 100 were in the US. In comparison, in the 2004 Shanghai Jiaotong’s rankings, 51 of the top 100 were in the US.
With the substantial decline of the US economy in the 2000s decade, it is particularly important that the US retain this prestige world university status. Thus, I think there should be a big push to keep, and even add to, this US competitive advantage.
I think by far the most effective way for the US to retain, and hopefully even better, this research education advantage is to offer very attractive incentives for the very best young, creative US minds to enter the very best US research universities, objectively measured.
Thus, I think the country should consider a Bonus College Research Tax Credit initiative. Thus, US taxpayers would be granted, for individual federal income tax purposes, an additional education tax credit each year as a certain percentage of tuition paid, not funded by grants, scholarships or fellowships, above some minimum amount, such as in excess of $10,000. But this Bonus Tax Credit would only be for this tuition above $10,000 paid to the finest US research universities.
In determining which US research universities qualify, I would use the two premier worldwide ranking organizations mentioned earlier, the London Times and the Shanghai Jiaotong University.
These Bonus Tax Credits for a given year would only be given to taxpayers paying this tuition above $10,000 to a world class US research university ranked in the top 100 in the most recent year by both the London Times and by the Shanghai Jiaotong University.
So clearly, US universities will be highly motivated to step up their education quality even more and be ranked in the top 100, because they will then get even better quality students, whose related US taxpayers paying the tuition will be awarded nice Bonus Tax Credits.
And to make it even more of an attractive incentive in this Race to the US Higher Education Research Top, I would have the tax credit percentages granted be much higher for the higher ranked US universities ranked in the top 100. Thus there is a highly-charged incentive to move up the ranks by improving the education quality of the US research university.
I would consider tax credit percentages something like this:
Average of Two Rankings….Tax Credit %
Top 1-5………..........................15%
5.5-10……………………………......14%
10.5-15……………………………....13%
15.5-20……………………………....12%
20.5-25……………………………....11%
25.5-30……………………………....10%
30.5-35……………………………......9%
35.5-40……………………………......8%
40.5-45……………………………......7%
45.5-50……………………………......6%
50.5-60……………………………......5%
60.5-70……………………………......4%
70.5-80……………………………......3%
80.5-90……………………………......2%
90.5-100……………………………....1%
Thus, say a Seattle, Las Vegas, or Denver area student decides to attend the cream of the research crop on the West Coast like Cal-Berkeley, Stanford, or Caltech, which all are in the top 5 rankings. Then assume this student and/or his parents pay out-of-state tuition to Cal-Berkeley, or private tuition to Stanford or Caltech, of say $40,000. This taxpayer would be get a Bonus Research College Tax Credit of $4,500, or ($40,000 – $10,000) X 15%, in the current year.
Then, say a Chicago area student decides to attend the prestigious, private University of Chicago, which has an average ranking of 10.5. Let's assume this student or his parents pay $40,000 of tuition. This taxpayer would get a Bonus Tax Credit of $3,900, or ($40,000 - $10,000) X 13%. Likewise, a Chicago area student could decide to attend the pretty close-by, exceptionally-strong University of Wisconsin. Even though this Chicago student pays out-of-state tuition here, this will be softened some by a very nice Bonus Tax Credit. Also, a Chicago area student or a Milwaukee area student could also benefit from the Bonus Tax Credit by attending the nearby, very high quality Northwestern University.
And then just like the Chicago area student going to the University of Chicago above, if a Philly area student, New York area student, or Boston area student decides to attend close-by superb private universities like the University of Penn, Columbia, Cornell, Princeton, Yale, MIT or Harvard, a very healthy Bonus Tax Credit will result.
Also, in the case of the University of Chicago and Yale, these schools, both at an average ranking of 10.5, are just missing a higher ranking, with the resultant higher Bonus Tax Credits for many students. Thus, they are highly energized to bump up their 10.5 average ranking to at least 10.0.
And if you wanted to make it even more of an incentive, you just increase the tax credit percentages. Frankly, I would...and markedly so....the long-term payback to the country will be off the charts.
There are 40 world-class US universities that are ranked in the top 100 in 2010 by both the London Times and by the Shanghai Jiaotong University. Here are the average rankings of these 40:
Harvard………….....1.0
MIT………………......3.5
Stanford………….....3.5
Caltech…………......4.0
Cal-Berkeley……....5.0
Princeton……….....6.0
Chicago…………....10.5
Yale……………......10.5
UCLA………….......12.0
Columbia………....13.0
Cornell………….....13.0
Johns Hopkins…..15.5
Penn……………......17.0
Michigan………......18.5
U of Washington...19.5
Cal-San Diego…....23.0
Northwestern…...27.0
Illinois…………......29.0
Duke……………......29.5
Wisconsin……......30.0
Cal-Santa Barbara.30.5
Wash U -St Louis..34.0
North Carolina…..35.5
Carnegie Mellon...39.0
Minnesota………...40.0
NYU…………….......45.5
Cal-Irvine………....47.5
Cal-Davis………......50.0
Colorado………......50.0
Vanderbilt………...52.0
Southern Cal........59.5
Pittsburgh………....60.0
Brown………….......60.0
Ohio State…….......62.5
Maryland……….....67.0
Boston U………......68.0
Rice……………........73.0
Case Western….....81.0
Virginia……….......84.0
Arizona……….......86.5
To make these world class research universities even better, I also would not let any university be eligible unless both its legacy percentages are below a certain minimum percentage, and its minority group percentages are above a certain minimum percentage.
Making the Business Research Tax Credit permanent will make US businesses much more competitive in the world economy. I think by adding this Bonus College Research Tax Credit, the permanent Business Research Tax Credit will be substantially more effective, in the long run, in giving US businesses a clear edge in competing in the world economy. But this Bonus College Research Tax Credit will also do something much more….it will substantially improve the standard of living and health of all peoples around the world.
And in the long run, I say Bonus College Research Tax Credit will be monumentally more effective to the US economy than Bonus Tax Depreciation for Big US Corps.
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