One of the key provisions in President Obama’s Framework for Business Tax Reform is a Minimum Tax on Foreign Earnings.
What this accomplishes is to make it much less attractive for multinational corps to shift income, and the related jobs, overseas to foreign income tax havens.
Just how significant is the shifting of income overseas to foreign tax havens? It’s just huge. And it is done in a myriad of creative ways.
These self-serving people that keep pushing for a global territorial tax system are way off target.
A territorial system would result in even more gaming of income shifts from the US to foreign income tax havens, along with the loss of even more US jobs. What pure craziness.
This is why the 99%, and particularly the Occupy Movement, is so furious with a US Government which continually legislates for the 1%.
There is nothing more 1% than a global territorial tax system.
If a global territorial system of taxation were instituted, I think you would see a grass roots explosion like you have never seen before. These Occupy Movement people are very bright and you can't snow them.
US Public companies with February 2011 through November 2011 fiscal year ends have already filed their 2011 annual report 10-Ks with the SEC.
My data below deals with just the most profitable of these companies. I have included the 61 of them which have Worldwide Consolidated Pretax Income of more than $1 bil in either fiscal year ended 2011 or in 2010.
When the December 2011 and January 2012 10-K's are all filed with the SEC, I'll make an updated post to include the numerous US Big Corps with these December and January year ends.
Below here is the percentage of Worldwide Pretax Income (PTI) which was generated overseas.
....................................2011......2011.........2011..........2010
....................................Intl...Worldwide...Intl PTI......Intl PTI
....................................PTI.........PTI..........% Mix.........% Mix
……………………………..(millions of dollars)
Estee Lauder..............1,189......1,026.........116%.........140%
Tyco Intl....................2,119......1,893.........112%..........119%
Carnival.....................1,912......1,912.........100%.........100%
Agilent Technologies....944......1,032..........91%...........76%
Covidien Ltd..............1,917......2,216..........87%...........48%
Western Digital.............660........780..........85%...........93%
Cisco Systems............6,611......7,825..........84%...........88%
TE Connectivity.........1,361......1,629..........84%...........98%
Seagate Technology.....479.........579..........83%...........96%
Accenture Ltd..........2,793.......3,512..........80%...........82%
Forest Labs..............1,007.......1,338..........75%...........59%
Apple.....................24,000....34,205..........70%...........70%
Adobe Systems............716......1,035..........69%...........70%
Microsoft................19,209....28,071..........68%...........62%
Hewlett Packard........5,943......8,982..........66%...........63%
Analog Devices............706......1,062..........66%...........68%
Johnson Controls......1,324.......2,111..........63%...........62%
Nike..........................1,760......2,844..........62%...........72%
Medtronic.................2,276......3,723..........61%...........61%
HJ Heinz.......................808......1,375..........59%...........61%
Air Products&Chem......881......1,507..........58%...........63%
Mosaic......................1,794......3,271..........55%...........50%
Parker Hannifin...........732.......1,414..........52%...........53%
Emerson Electric......1,740......3,631..........48%...........55%
Qualcomm................2,703......5,687..........48%...........51%
Applied Materials......1,121......2,378..........47%...........43%
Becton Dickinson(1).....808......1,716..........47%...........46%
Micron Technology......257........551..........47%...........72%
Oracle.......................5,033.....11,411..........44%...........48%
Procter & Gamble......6,206....15,189..........41%...........44%
CSC...............................386........968..........40%...........56%
Franklin Resources....1,028......2,624..........39%...........44%
Deere.........................1,605......4,223..........38%...........32%
CA................................458......1,209..........38%...........39%
Costco(1)......................857......2,383..........36%...........31%
ArcherDanMidland.......980......3,015..........33%...........44%
KLA Tencor..................358.......1,110..........32%...........58%
Monsanto.....................734......2,374..........31%...........17%
McKesson.....................474......1,635..........29%...........28%
Coach...........................317......1,301..........24%...........14%
NewsCorp.....................918......4,177..........22%...........13%
Best Buy.......................449......2,078..........22%...........15%
FedEx..........................472......2,265..........21%...........29%
Campbell Soup.............224......1,168..........19%...........15%
Visa..........................1,006......5,656..........18%...........14%
Starbucks.....................288......1,811..........16%............9%
Viacom........................496......3,245..........15%...........13%
Cardinal Health.............219......1,518..........14%...........19%
Automatic Data Proc....258......1,933..........13%...........12%
General Mills................283......2,428..........12%............7%
Precision Castparts.......159......1,494..........11%...........12%
Disney..........................713......8,043...........9%............8%
ConAgra Foods...............75......1,251...........6%............6%
Discover Fincl Svcs(2)......0......3,511...........0%............0%
Toyota Motor Credit(2)....0......3,003...........0%............0%
TD Ameritrade(2).............0......1,016...........0%............0%
Walgreens........................0......4,294...........0%............0%
AmeriSourceBergen(2).....0......1,131...........0%............0%
Autozone.........................0......1,324...........0%............0%
Bed Bath & Beyond...........0......1,293...........0%............0%
Apollo Group..............(259).......954.........-27%..........-23%
Total all 61............111,507...228,340.........49%...........49%
(1) International Income excludes Puerto Rico.
(2) There was no disclosure of foreign earnings, but the foreign income tax disclosed was minor and thus I assumed all of the Worldwide Income was earned in the US.
Of these 61 US Big Corps, 54 of them disclosed their Foreign Pretax Income. Below here is the Current Foreign Income Tax Paid or Payable in 2011 and the related Foreign Pretax Income in 2011 for these 54 US Big Corps.
.....................................2011.......................2011
...................................Current......2011.....Foreign
...................................Foreign....Foreign..Effective
................................Income Tax....PTI.....Tax Rate
.................................(millions of dollars)
Coach..............................(3)...........317.......-0.9%
Agilent Technologies.......(6)...........944.......-0.6%
Apollo Group....................1...........(259)......-0.4%
Carnival............................0..........1,912........0.0%
Western Digital................12............660........1.8%
Apple............................769......24,000........3.2%
Forest Labs.....................57........1,007........5.7%
Seagate Technology........28............479........5.8%
Adobe Systems...............42............716........5.9%
Qualcomm....................170........2,703........6.3%
Cardinal Health...............17............219........7.8%
Cisco Systems...............529..........6,611........8.0%
Medtronic.....................189.........2,276........8.3%
Microsoft...................1,602.......19,209........8.3%
KLA Tencor....................32............358........8.9%
Covidien Ltd.................187.........1,917........9.8%
Tyco Intl......................229..........2,119......10.8%
McKesson.......................54............474......11.4%
Franklin Resources.......123.........1,028......12.0%
Starbucks.......................37............288......12.8%
TE Connectivity............197.........1,361......14.5%
Analog Devices.............105...........706.......14.9%
ConAgra Foods...............12..............75......16.0%
Visa..............................168.........1,006......16.7%
Applied Materials.........206..........1,121......18.4%
Estee Lauder.................220.........1,189......18.5%
Procter & Gamble........1,188........6,206......19.1%
CA...................................88............458......19.2%
Hewlett Packard..........1,177........5,943......19.8%
HJ Heinz.........................161...........808......19.9%
Best Buy...........................92...........449......20.5%
Oracle.........................1,037........5,033......20.6%
Mosaic...........................380........1,794......21.2%
Air Products&Chem.......188............881......21.3%
ArcherDanMidland........222...........980......22.7%
General Mills...................69...........283.......24.4%
Nike...............................441........1,760......25.1%
CSC................................101...........386.......26.2%
NewsCorp......................242...........918.......26.4%
Parker Hannifin..............193...........732......26.4%
Accenture Ltd................748........2,793......26.8%
Becton Dickinson............220...........808......27.2%
Emerson Electric............477........1,740......27.4%
Precision Castparts...........44............159......27.7%
Costco............................270...........857......31.5%
Deere..............................520........1,605......32.4%
Johnson Controls...........458.........1,324......34.6%
Micron Technology..........89............257......34.6%
Campbell Soup.................78............224......34.8%
Viacom...........................180............496......36.3%
Monsanto.......................271............734......36.9%
Automatic Data Proc........97............258......37.6%
FedEx.............................198............472......41.9%
Disney............................521............713......73.1%
Total all 54.................14,727.....111,507.......13.2%
Clearly, this 13.2% overall foreign effective tax rate paid or payable in 2011 is unacceptable. It tells you why there is such a huge motivation to shift income to foreign income tax havens.
And this downward race to the bottom in effective tax rates is getting worse. Qualcomm had an unusual catchup switch between US and Foreign Income Tax Paid in 2010. When you exclude Qualcomm, the remaining 53 US Big Corps had their Total Foreign Income Tax Rate Paid or Payable drop from 14.0% in 2010 to 13.2% in 2011.
OK, so there clearly is a major problem that the Obama Administration has identified and proposed a framework for correcting. But specifically what should be done?
Well, the overriding principle has to be what best maximizes US job creation and fairness to all companies, not just to huge Multinational Corps, but also to small businesses, and also to all domestic companies.
To best accomplish this goal, I would focus like a laser on reducing the US federal income statutory tax rate on the lower amounts of all business income, both that of C Corps, but also on all business income that passes through at the individual level. That is where the bulk of the US job creation comes from.
Thus, the higher the minimum tax rate on foreign earnings, the more money that can be spent on reducing the tax rates on lower amounts of all business income.
Also, the higher the minimum tax rate on foreign earnings, the more insourcing will occur of foreign jobs being shipped back to the US.
And the higher the minimum tax rate on foreign earnings, the better the incentive to house new plants and other new facilities in the US.
There are many in the US Government who are a lot keener on this key issue than I am, but after reviewing the above foreign effective tax rates paid by US Big Corps, I'll stick my neck out and propose a very simple, progressive minimum tax rate on Foreign US Generally Accepted Accounting Principles (GAAP) Pretax Book Income, something like the following for each year:
First $100 mil.....................0.0%
Next $100 mil-$200 mil.....2.5%
Next $200 mil-$500 mil....5.0%
Next $500 mil-$1 bil..........7.5%
Next $1 bil-$2 bil..............10.0%
Next $2 bil-$3 bil..............12.5%
Next $3 bil-$5 bil..............15.0%
Next $5 bil-$10 bil............17.5%
Next $10 bil-$20 bil..........20.0%
Next $20 bil-$40 bil..........22.5%
Everything over $40 bil.....25.0%
In making this computation, the only item I would exclude from Foreign US GAAP Pretax Book Income in each year would be any Foreign Intangible Asset Impairment Charges.
And of course, there would be a foreign tax credit subtraction for the foreign income tax paid in each year.
However, you have to be very careful as to what to include as a foreign tax credit to apply here as a subtraction.
This foreign tax credit allowed as a subtraction should only be the foreign income tax paid in each year, and exclude any other kind of foreign tax paid. And any royalties and other non-income tax paid to foreign governments should clearly be excluded from the foreign tax credit subtraction.
