Taxes: Enforced Exactions, Not Voluntary Contributions

My good friend, the late chairman of the Sovereign Society, Jack Pugsley, was fond of quoting Voltaire: “The art of government consists in taking as much money as possible from one party of the citizens to give to the other.”

I am equally fond of a companion consistent quotation from the late, distinguished Learned Hand, judge of the U.S. Court of Appeals in New York. In a memorable tax case dissent, Judge Hand offered these timeless remarks: “There is nothing sinister in arranging one’s affairs so as to keep taxes as low as possible… nobody owes any public duty to pay more than the law demands. Taxes are enforced exactions, not voluntary contributions.” Commissioner v. Newman, 159 F2d 848, 851 (2nd Cir 1947).

This brings me to the arcane issue of tax competition among nations. I am not going to dwell on explanations of why international tax competition is so important. For perhaps the best discourse on the issue available I refer you to the Center for Freedom and Prosperity.

But today’s news dispatches provided some excellent examples of tax competition and its beneficial results for you and me as consumers and, indeed, as taxpayers.


Irish Example

From Ireland we learn the government has joined the EU crowd by signing an agreement that’s supposed to ease and speed the exchange of tax information among EU tax collectors.

The Irish reporter added his own editorial comment, noting: “Some foreign commentators have pointed at Ireland’s 12.5% corporation tax rate and accused it of being nothing more than a tax haven.” He speculates that “given this back ground, and perhaps a desire to repair relations with its EU partners” Ireland is trying to avoid “the pejorative tax haven label by signing.”

That, right there in a nutshell, (which is where it belongs) is the leftist propaganda line - low or no taxes imposed in any country is “unfair competition” to all those high tax welfare state deficit big spenders who want to wring ever last cent out of hard pressed taxpayers. They want uniform high taxes everywhere.

Never mind that the attraction of Ireland’s low corporate taxes for foreigners has created at least one bright spot in that country’s otherwise difficult economy.


Further East

From former Communist-dominated Bulgaria comes news of a growing wave of incorporations in that country by Greek and Romanian owned companies. That’s because Bulgaria, along with Ireland, is among the three countries with the lowest corporate taxes in the European Union. The thirds is Cyprus with a corporate tax also at 10%.

Bulgaria’s low corporate tax rate of 10% has encouraged this trend since Romania’s rate is 16% and in Greece it is 25%. Bulgaria also offers lower wages and rents and minimal regulation and registration procedures all valuable attractions for investors.


America Among the Highest

Contrast those low company taxes with the 35% corporate tax imposed in the United States, the second highest in the world. Only Japan, with a combined rate of 39.5% levies a higher rate.An impartial April 2011 study by PricewaterhouseCoopers LLP found, all taxes considered, that U.S. companies labor under the 6th highest effective tax rate in the world. The tax rate for the largest U.S. companies between 2006 and 2009 was 27.7%, compared with a non-U.S. average of 19.5%.

And don’t worry friends. Few people mention it, but every cent of those U.S. corporate taxes are paid by you and me, figured into the price of all the goods and services we consume. Next time you hear deceitful class warfare demands for higher corporate taxes remember that companies don’t pay corporate taxes — you and I pay them.


Big Business Hogwash

Now our high-taxing leftist friends argue that it is Big Business hogwash to claim that the U.S. has the second highest corporate tax rates in the industrialized world.

Yes, they admit, 35% is the statutory rate, but when you figure in the various loopholes, credits and other subsidies for which many American companies are eligible under the law the corporate tax rate is much lower. And you can bet American companies do take advantage of every tax loophole available, as why should they not?

The really intelligent way to handle corporate taxes is to switch to a territorial tax system, which would not tax U.S. companies on profits they earn offshore. Other countries, including Japan and the U.K., recently have switched to the more sensible territorial system.

Now the U.S. forces American companies to pay the top corporate rate of 35% on profits earned outside the country, though it allows companies to defer taxation until they bring the profits home. No wonder that trillions in U.S. corporate cash is stashed offshore - legally, I emphasize.


Cisco Example

Lastly, for one of the best explanations of how and why U.S. companies keep their earnings and cash offshore, read an excellent article by Jesse Drucker who uses Cisco Systems as the example.

Cisco Systems, the world’s largest maker of networking equipment, has cut its U.S. corporate income taxes by $6.7 billion since 2005 by booking half its worldwide profits at a subsidiary located at the foot of the Swiss Alps that employs about 100 people.

Cisco’s techniques cut the effective tax rate on its reported international income to about 5% since 2008 by moving profits from roughly $20 billion in annual global sales through the Netherlands, Switzerland and Bermuda.

I guess if they think about it the buyers of Cisco products and Cisco shareholders would say they are all for that kind of tax competition.

You can learn all about lower taxes at home and offshore by becoming a member of the Sovereign Society Freedom Alliance, which I have the honor to chair. While you still are able, there are many legal ways to enjoy privacy, banking and save taxes offshore. I can tell you Where To Stash Your Cash. If you’re interested in living offshore, The Passport Book is just what you need.

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