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Japan Is Getting It. Why Can’t We? July 23, 2013 11:01 AM | Tagged as territorial taxes corporate taxes

WSJ July 19, 2013 page A9, “America Goes It Alone On High Corporate Taxes” by Nakabayashi and Carter

The Biz Bucks Guy has been advocating the lowering of US corporate tax rates since before the advent of the Great Recession in 2007.  As noted by Nakabayashi and Carter, the previous world leader in onerous corporate taxes, Japan, is finally figuring out that high corporate tax rates have a detrimental effect on a nation’s economy. Japan is lowering its rate. The US remains the highest and now by an increasing margin.

In the business word swamp a new term has emerged regarding this issue of corporate tax rates. It is territorial tax policy. What does that mean? The word is not too descriptive. Here’s a simple version. A territorial tax policy by a country allows corporation who earn profits in other countries to repatriate these profits into their home country without paying an additional tax upon that transfer. The other choice is called a world-wide tax policy which requires corporations to pay the home country’s tax in addition to the tax in the country in which the profits were earned. Two countries left a territorial tax policy in favor of a world-wide policy, New Zealand and Finland. The resulting effect on business and hence economic well-being caused both countries to quickly revert back to a territorial system. The US remains the largest economy with a world-wide tax system on corporations.  

A world-wide policy hurts in at least three ways. First, corporations from other countries can bid more in mergers and acquisitions because their tax burden is less. The number of US-owned companies in the Fortune 500 has dropped to 137 from 218 in 1986.

Second, a world-wide policy locks-out profits from being brought back to the US from overseas, now estimated to be about $2 trillon.

Finally, our current system promotes move-out. Corporations tend to move their operations overseas in a search of fairer tax treatment.

Perhaps the US will now begin to “get it” in light of our weak economy. Just thing what $2 trillion of new investments would do for us.

[The Biz Bucks Blog is primarily written to former students of Biz Bucks training courses to encourage their daily reading of the three opinion pages of the WSJ. This refreshes principles of Biz Bucks courses and improves business acumen on topics not discussed in Biz Bucks training.] 

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