Frugaling

Save more, live well, give generously

Tax Inversions: The Most Unpatriotic, Selfish, And Shortsighted Decision Companies Make

By 6 Comments

Share This:

Corporations Tax Inversion Evasion No Revenue

Tax evasion is persecuted heavily in the United States. If you’re caught keeping income away from the federal government, you could be looking at a hefty prison term and fine. This very crime that put Al Capone, the notorious mafia-gangster, behind bars. And yet, when companies dodge taxes, their shareholders rejoice. Nowadays, rapacious corporations are pushing the limit of U.S. tax laws by engaging in one of the sneakiest tax-dodging practices ever: tax inversions.

What are corporate tax inversions?

Bear with me as I try to explain a fairly complicated procedure. Essentially, corporations pay certain tax rates in America. Sometimes motivated by intrinsic greed — at other times by shareholders — corporate executives decide that moving their official headquarters to another, overseas location would be better for taxation. In switching to another country, with lower tax rates, they can pass on those savings to shareholders via greater earnings per share (via profit and revenue), larger stock buybacks, and more dividends. All they have to do is purchase another company that already has its headquarters in a tax haven.

When you own shares in a company like this, you can easily get swept up into this grand, wonderful idea. You’ll be getting more money for your investment and the company will be even more competitive. These are significant advantages — until you look at the dirty consequences.

When robber barons are more patriotic than today’s businesses…

Robber barons — 19th-century industrialists/capitalists — knew how to make money hand over fist. They could squeeze workers and make millions of dollars (billions when accounting for inflation). Many of these elite capitalists formed companies in finance, manufacturing, oil, and transportation. These industries were at the heart of American success; although, the robber barons made a lot more than your average, everyday peon.

There was a uniting factor to these antiquated moneymen: pride in country. They made their riches here, and much of the money flowed back into America. For instance, Andrew Carnegie, who started one of the largest steel manufacturers in the world, gave much of his wealth to schools (Carnegie Mellon University), museums, and libraries.

As America matured, tax laws and corporate structures evolved. Workers were offered more rights due to union memberships. Talk of a fair wage encouraged companies to pay more and protect workers. America became a booming economy, despite these new restrictions. Social welfare programs developed, as well, which sent people to college (affordably) and created Social Security. There was a respect for those who worked 40 years. The country believed they deserved to live safely after working so hard. Today’s businesses seem to have a different motivation.

How much do American companies have to pay in taxes?

Now, hardly a day goes by without a corporate executives complaining about excessive taxation. Steve Schwarzman famously compared the pressure for increased taxation to the invasion of Poland by the Nazis. Classy! Or, how about the Home Depot founder, Ken Langone, who said that increasing taxes, awareness of income inequality, and the Democratic agenda was “was what Hitler was saying in Germany.” Holy hyperbole! And the last one (that I’ll include in this article) comes from Tom Perkins, whose net worth is said to be around $8 billion. He said, “[there’s a] progressive war on the one percent…In the Nazi area it was racial demonization, now it is class demonization.” To put it simply, he’s saying that poor people clamoring for help is comparable to Nazis killing Jews. Better to bite your tongue, perhaps?!

Beyond the disturbing question of why some bigoted wealthy people freely invoke the Holocaust and its accompanying atrocities, I’m left wondering how bad it is in America for them. If people are that stirred up and eager to fight back poor people, tax increases, and basic rights for workers, these executives must be struggling. Alas, avoid the wellworks, the aforementioned Nazi-invokers are all billionaires. I trust they’ll find a way to pay their next meal.

Despite these clarion calls for tax revolution, American companies are doing well. In fact, corporations are seeing record profits year-over-year. How can this be happening in these awful, tax heavy times? Well, for large-cap corporations, they’re not. Armed with restless lawyers, accountants, and lobbyists, the largest companies march up to Capitol Hill and demand tax breaks. And you know what? It works.

Yesterday, CNBC reported on 20 (to name a few) companies that pay 0% in taxes. Take a look and see if you recognize any:

1. Merck
2. Seagate Tech
3. Thermo Fisher
4. General Motors
5. Public Storage
6. Iron Mountain
7. Newmont Mining
8. Eaton
9. Avalonbay
10. Kimco Realty
11. Prologis
12. Boston Properties
13. Apartment Investment
14. Plum Creek Timber
15. Citrix Systems
16. Crown Castle
17. Macerich
18. News Corp.
19. Essex Prop.
20. First Solar

These companies are likely benefiting from tremendous tax loopholes and writeoffs that are only available to them. From federal investments to research grants to special “one-time” discounts, they add up and suddenly the bill comes to $0.

That means that the preceding list doesn’t contribute a single dollar to our federal budget via traditional taxes. Moreover, they don’t properly fund our infrastructure that they rely on. Without the education, federal investments/breaks, transportation system, etc., these companies would have a devastatingly hard time finding success here.

Business-first media outlets such as the Wall Street Journal swiftly defend companies by saying:

“We’ve written for years about how the U.S. has the highest corporate income tax rate in the developed world, and that’s an incentive for all companies, wherever they are based, to invest outside the U.S.”

In this strange time when taxes are demonized, it’s important to realize that many companies aren’t paying their fair share. These claims that America has the highest corporate tax rate in the world don’t reflect the numerous benefits; after all, membership has its privileges and sometimes that includes sizable tax breaks.

How do corporate tax inversions hurt countries?

Despite this business-friendly reality, some companies still seek to lower their tax burdens — wherever they can find them. Tyco International, Fruit of the Loom, Ingersoll Rand, Transocean, and Eaton Corporation all successfully left the U.S. (for tax purposes), but they all still benefit from the infrastructure and development here. See, even after you leave a country, its people, and suck another $1 billion into your coffers because of the move, we welcome you to do business here with open arms.

It’s sickening. Companies vacate the U.S. for places like the Cayman Islands, Ireland, and Switzerland, where the corporate taxes are zero percent. Americans, again, lose all that tax revenue that would’ve gone to state and federal programs. This all contributes to widening budget gaps, shortfalls, and growing austerity measures. Then, the welcoming nation holds out open arms for the new company. But despite the new headquarters, they make zero percent from their new neighbors.

This is a brutal act that causes disruption for both countries. With zero percent coming in for either party, they both suffer the consequences of a newly globalized world.

Globalization was supposed to bring greater diversity and talent. Suddenly, the world is flat, right? Aren’t we supposed to be benefiting from a shared upward mobility? When tax inversions are employed, it’s hard to see how anyone could possibly benefit — except for a select few shareholders and corporate executives.

Who Are The Real Job Creators?

By 9 Comments

Share This:

Office Space Boss Are Job Creators

The term starts with classic media manipulation

For too long, big businesses and media conglomerates have propagated messages that suggest that only wealthy individuals can be graced with that moniker: “job creators.” The time has come to reappropriate and annex this title from the privileged minority.

News outlets are masterminds at twisting words to fit this greater script. Their training must be incredible, because they’re naturals at it. The trite, overused, and vapid phrases support a message that “wealthy people create jobs.”

The wealthiest elite stole the term, job creators. Instead of saying “rich,” “wealthy,” or “top one-percent,” the term puts a positive, flattering spin to scary inequality. What could possibly be wrong with job creators? Why would we want to discourage job creation? We need to help these job creators do their job — create jobs! (You can find beautiful examples of this media manipulation on Fox.)

This widely circulated logical fallacy has long been hurting the masses. Billionaires are often seen as the lubricant for our great American society. The dream that we are born into is promoted by their unique skill set, intellect, and economic wherewithal. Where would we be as a country, people, and world without the wealthiest people creating jobs? What would the world look like if we just removed the economic power that is trapped within the economic elite — our infamous one-percenters?

Started from the bottom now we here…

Let’s clear up this myth real quick. Below, I have ten (off the top of my head) of the greatest entrepreneurs of the last few decades. None of them were billionaires or part of the wealthy elite prior to creating thousands of jobs.

1. Steve Jobs (Apple)
2. Mark Zuckerberg (Facebook)
3. Elon Musk (PayPal, Tesla Motors, SpaceX)
4. Larry Page (Google)
5. Sergey Brin (Google)
6. Bill Gates (Microsoft)
7. Sean Parker (Napster, Spotify, Facebook)
8. Jeff Bezos (Amazon.com)
9. Howard Schultz (Starbucks)
10. Kevin Plank (Under Armour)

Steve Jobs was a job creator and entrepreneur
Steve Jobs unveils the latest generation iPhone. Photo: Matthew Yohe.

There’s no doubt that we’ve benefited as a world and country from these entrepreneurs. But to suggest that their billionaire status created jobs would be naive and dangerous. They created jobs through grit, timing, and intellect, but it came before the money.

Jobs was tripping on LSD and going through spiritual journeys, and then segued to the computer industry.

“[Steve Jobs] never finished college, dropping out after 18 months to take random, creative classes (such as that calligraphy, which he said is one of the main reasons why the graphics look so great on Apple devices). He was dropping in on these classes and just grabbing as much knowledge as possible without actually getting a grade in them. During the course of that he slept on the floor of friends’ dorm rooms, returning Coke bottles for food money, and getting weekly free meals at the local temple. (Source)”

He wasn’t wealthy, just a hippie looking to find salvation in the next great technology.

Larry Page and Sergey Brin were mere graduate students at Stanford University when their lives were forever changed. They weren’t rich, just motivated entrepreneurs.

Who are the real job creators?

We have entered a centralized, monopolized, anti-trust-ridden epoch where only a select few companies, organizations, and people control the dialogue. Fox News shouldn’t be able to manipulate the American people into thinking that wealthy people are job creators. And the short answer: they’re not.

Today, we must reclaim the title of “job creators” to their rightful owners: consumers and small business entrepreneurs. Every time we choose to search through Google, check/update our Facebook status, click and clack over our Apple keyboards, and slip on that Under Armour for a run, we are making an active, consumer-based choice. We are supporting jobs for that company and industry. That purchase and usage is our choice; ultimately, we create and support those jobs through this spending.

Trickle-down economics doesn’t work, and neither does trickle-down job creation. Let’s get our title back.

Outsourcing Corporate Responsibility And Taxation

By 7 Comments

Share This:

Henry Ford Corporate Responsibility
Mr and Mrs Henry Ford ride in the first Ford automobile

America and business: peanut butter and jelly

America has an illustrious, grand entrepreneurial spirit. Many generations of families started from humble beginnings to succeed. The United States was an incubator for business acumen. After the industrial revolution, we became the world leader. Amidst a growing infrastructure, companies and their entrepreneurs found success in the States.

Henry Ford was one of those genius businessman. He was responsible for designing the first moving assembly line, which greatly increased manufacturing and production time. Additionally, Ford instituted a $5-per-day income for his workers. The reasoning: He wanted his employees to be able to purchase the vehicles, decrease employee turnover, and increase the company’s bottom line, in turn.

Everybody won. He sold more cars, his employees saved and purchased more, and there was a pride in creation. This was an American company — fulfilling the American dream.

During World War II, production was reinstituted for a desperate military. An enemy stood to destroy entire races, religions, and peoples. The Allies came together to extinguish this enemy, but the pains were felt at home. Families rationed necessary foods for soldiers. People bought government bonds and women went to work. The U.S. needed its people, and they stepped up to defeat the Axis of evil. We were patriots.

Businesses were essential to a powerful rise in the middle class during the 50s and 60s. Taxation among executives and companies was high. This period is famous for 90 percent marginal tax rates in the highest income brackets. Despite the most social mobility and income equality ever, the system began to crumble.

Special interest groups, political power, and declines in average America

It all starts with special interest groups. Free market principles exalted an invisible hand that led to massive outsourcing. Much of the manufacturing industry disappeared as a consequence. We’ve lost nearly all customer service and basic technological leadership to Asian countries. It’s a rarity to find anything “Made in America.” Instead of stopping and correcting this course, America and its people have held steady — buying, consuming, and destroying as much as they can. Patriotism and pride in country be damned.

These economic principles, which largely took America by storm in the 80s, were lauded by the Reagan administration. Swift cuts to taxes were made for everyone, but they mostly benefited the richest of our population. Almost immediately, an increase in income inequality, social stratification, imprisonment, and use of tax havens increased.

Each time we’ve lost another layer of pride and power in America, corporate executives have argued that they are creating jobs, cutting inefficiencies, and raising shareholder value. We can’t fall for these tired logical fallacies. Jobs have been created elsewhere and people are paid less than ever. Wages are stagnating for most, as executives get rich. We’re stuck in the twilight zone of corporate disrespect, political power, lobbying groups, and massive outsourcing of everything. It’s dystopian in the powerlessness of average people. The last thing to go: corporate headquarters and revenue.

How to avoid taxation and book record profits

In the past, tax havens were simply “offshore,” Caribbean or Mediterranean islands. Rich doctors, businessmen, and criminals used these countries to store untraced funds. The money would be protected from extradition, taxation, and/or criminal prosecution. But as businesses grew with the new, global economy, tax practices changed in step.

Yet again, the start was in the 80s. Apple — yes, the iPhone and iPad maker — pioneered a strategy to avoid federal taxes “legally.” This gets complicated quickly. Essentially, Apple setup subsidiary corporations in other countries and booked intellectual property sales from those international locations. Income then sidestepped the higher-tax policies in America for lower-tax zones. This magical strategy is called, the “double Irish arrangement.”

Named for its home location, Apple set up a location in Ireland, where corporate taxes are 0%. Then, these new funds avoided billions of dollars in taxation and could still be reported as revenue and profit. This opened the floodgates for copycat companies to do the same (e.g., Facebook, General Electric, and Google).

By harnessing the power of this tax-dodging trick, some companies whittled down their tax liability to nothing. We’re talking about multibillion dollar profits — untaxed. More importantly, all of those loopholes lead to severe federal tax revenue shortages, despite record-breaking profits. Our people, infrastructure, and future are in the balance.

The regular American, a patriot

Warren Buffett is famous for saying that if you’re born as an American, you’ve already lucked out. This is still the land of opportunity. And frankly, I couldn’t agree more. The U.S. is still an incredible place. I have a lot of pride and feel humble for my opportunities. I couldn’t have done it without this place.

Over the last couple years, I’ve built a solid side income as a writer and entered a doctoral program. This is the life I want. I’ve carved out my niche. I feel fortunate for the privilege to be given room to explore and succeed. The financial successes also increased my tax burden.

My company, Frugaling, is based in America. I don’t have an LLC or formal corporation, but it’s my business. At the end of every year, I have to account for this revenue through a Schedule C form and self-employment taxes. Last week, I explained that I had begun to prepare for this accounting challenge, as self-employment taxes are about 30% of revenue. This is because medicare, medicaid, and social security aren’t withheld. But I’m happy to contribute and do my part.

I owe it to the place where I found success. I want others to have the opportunity to excel, as well. America is empty without a cyclical, contributing populace. What goes around comes around. I pay my taxes. Why don’t companies?

Warning! We’ve crossed the tipping point

Today, the largest corporation yet, Medtronic, filed to leave America. We’re talking about a pure formality that will make more tax revenue leave America. The medical device manufacturer just purchased another company — Covidien — that is incorporated in Ireland. Medtronic will switch to that legal address. BusinessWeek reported that this is becoming increasingly popular:

Minneapolis-based Medtronic joins some 44 American companies that have reincorporated abroad or struck plans to do so, including 14 in a recent wave of moves that began in 2012. Earlier this year, Pfizer Inc., the largest U.S. drugmaker, briefly proposed taking a U.K. address, a move that might have cut its tax bills by as much as $1 billion a year…Without a change in law, a congressional panel estimated last month, future deals will cost the U.S. $19.5 billion in tax revenue over the next 10 years.

For shareholders, this is wonderful news. Those tax savings can be directed to share buybacks, increased dividends, greater research pipelines, and better compensation for employees. But meanwhile, Americans will suffer. See, we are stakeholders in a way. We have a stake in what a company does or doesn’t do. Now that companies are fleeing the states in search for individual gain, at the cost of the whole, we must realize that the last pillar of corporate responsibility and patriotism is about to fall. As this disintegrates, and taxation revenue crumbles, so will our country.

I Am LaTisha Styles, Founder Of Young Finances, And This Is How I Work

By 7 Comments

Share This:

Latina Styles Headshot
Latina Styles

Over the last couple months I have interviewed a growing number of top bloggers and writers to get their input on personal finance (e.g., the founders of Budgets Are Sexy, The Broke And Beautiful Life, Frugal Rules,Debt Roundup, and Modest Money). Today, I’m excited to share with you another terrific interview with one of the top personal finance writers on the Internet.

LaTisha Styles founded a popular website called Young Finances. Since 2010, she has become an Investment Analyst, entrepreneur, and was featured in a variety of publications. Here’s my interview with her. Thanks again, LaTisha!

What inspired you to begin Young Finances?

I started Young Finances because I graduated college in 2010 and I was having a hard time finding a job. I had a degree in Finance and learned a lot about the correct way to manage personal finances after recovering from several bad decisions I made with my money. I decided to start writing about what I learned to help other young adults.

How did people (friends, family, etc.) react when you first started? How long have you been blogging?

Almost all of my friends were supportive. I used to share each post on Facebook and I got a lot of good feedback and encouragement. I started the site in December of 2010, but I have been blogging much longer. I started an e-zine when I was 14 and I just found an old issue! It was such a blast from the past.

What was your experience with design, code, web work prior to starting your site?

I graduated with a business degree, and had to learn the basics of HTML and CSS in our business information systems class. We had a group project that involved creating a single page website from scratch using Dreamweaver. I later taught myself more using W3 Schools to understand the basics of PHP and Javascript for WordPress. I personally did a few customizations to my site but on the next redesign I would probably hire a professional coder.

What advice would you give to those thinking about starting their own site?

logoYTDon’t be afraid to just get started. You don’t have to know everything when you are first starting out and you won’t know everything. If you don’t like the name of your site you can always change it. More than once. I started out as Financial Success for Young Adults then moved to Young Adult Finances and now my happy home is Young Finances. I think this is where we’ll stay.

How do you make money from your site? Where does most of your revenue come from?

My site generates revenue primarily through affiliate marketing. When I first started, I sold text links and sponsored posts but I decided to focus on more stable revenue. If you’re like me and interested to see income reports, I share the income that comes from my web properties each month at TravelTish.com. Mostly I learn about the best financial tools and I test them out for myself before recommending them to my audience.

What do you think you’ve learned from your readers and fans?

I’ve learned not to be so scared. I used to be really scared about putting personal information out there and sharing my money mishaps. But once I starting sharing, more people (and even close friends!) started reaching out to share their stories about money. It makes me sad that personal finance is such a taboo subject because I think that we could all learn a lot from the mistakes and successes of others.

How I Work Youtube Latisha Styles Office
LaTisha’s workspace where she films YouTube videos

How can somebody in lower incomes best overcome financial hurdles and prosper?

I can only speak from my own experience here. I come from a low-income family and I was determined to set the bar high for myself. I was fortunate that my parents made school a priority and taught me smart study habits. I decided to learn about how money works and how banks and businesses make money. Learning the system is the best way to beat it.

Wherever you are starting, you can do it. I always imagined that someone held me back at the starting line of my financial life, but I just had to exert that much more effort to win and achieve my own financial success. And I’m still gunning for first place.

I had to be willing to be different. Turn off the TV, start reading about successful people, figure out the formula. It will take time but you can do it. And look for role models and mentors. Tell them about your goals.

“When you really want something to happen, the whole world conspires to help you achieve it.”

That’s from The Alchemist by Paulo Coelho one of my favorite books.

Who are your financial role models?

I admire the stories of ‘regular people’ as my financial role models. People who started with nothing and worked hard. Author J.K. Rowling who worked day and night on a book that helped pull her out of poverty and rapper B.o.B. who came from humble beginnings in Decatur, GA and played no name venues as he gained his fan base. I really admire that strong work ethic that unites successful people.

What personal finance sites do you read?

As a personal finance blogger, I like to read the sites that are very different. RomeoJeremiah.com has interesting posts about life and personal finance. I really enjoy reading AffordAnything.com. Paula really appeals to the rebel in me. I discover new blogs everyday but these are two that I come back to often.

To be honest, I would love to see more video personal finance bloggers. I enjoy watching FatGuyOnYoutube.com and of course, YoungFinances.com/tv.

What else would you care to share with the readers of Frugaling?

I would love to share my dancing skills! (And a bit of business advice). Please head over to this video and watch me do the hustle: youngfinances.com/sidehustle

Best Of

Recent Posts

Follow