The Campaign for America’s Future is a strategy center for the progressive movement.
What does it mean to be an American? What does it mean to be an
American corporation? An article in the Wall Street Journal the other
day should trigger questions like these.
WSJ: Domestic-Based Multinationals Hiring Overseas,
Multinational companies based in the U.S. boosted their
global work forces in 2011 almost entirely by hiring workers overseas,
underscoring the slow growth in the U.S. job market.
… The paltry hiring at home reflects where multinational companies are
focusing their attention. Stronger economic growth in overseas markets
in Asia and Latin America is driving their expansion, reinforcing their
shift toward cheaper labor or closer access to customers.
The U.S. parents of multinational firms account for about one-fifth of
total private U.S. employment. Since 1999, employment by U.S.
multinationals is down by 1.1 million inside the U.S., while it is up by
3.8 million overseas.
The hiring by American companies is not happening in the U.S. At the
same time these companies are holding $1.7 trillion of profits outside
of the country, away from their own shareholders and our economy to
avoid their taxes,
while pushing to dramatically lower the taxes they pay us – and even to get out of paying
any taxes at all on money they make outside of the country!
Why Do We Have Corporations?
Why do We the People even have laws that allow corporations and give them special benefits? The answer obviously is
for our common benefit
— why else would we do it? The corporate form of a business enables the
company to easily obtain capital from investors, in order to accomplish
large-scale projects
that benefit us. To encourage this we
give these entities special privileges. For example, we limit liability
which means the investors are not held liable for the actions of the
company – they won’t lose more than their investment if the company gets
sued for some reason. We provide a system that helps them obtain
financing, insurance, market liquidity and all kinds of things to help
those investors get a good return on their money.
Benefit: We the People want railroads, but it takes a lot of money to
build and operate a railroad. And our system wants private companies to
do the work of building and operating railroads instead us just doing
it ourselves. So we set up a way for a private company to gather
investment from lots of people.
Why Do We Want “American” Corporations?
Why don’t we just contract with any old corporation that comes along
to get things done for us? Who cares what country these entities are
from? Why should we as a country want to encourage and support our
American corporations? Because American corporations make money for us.
That is the whole point.
Other countries see themselves
as countries, and compete with us
as a country, for
their benefit and
the benefit of their people.
As much as some of us might want a world in which we all cooperate and
share and have “free trade” and other ideals and dreams, the fact is
that
other countries understand themselves as countries. Companies and industries located in other countries are operated to benefit
their people. Their governments give them special benefits to help them compete with our companies. And then they are taxed so
their country can have good schools and infrastructure and all the rest of the benefits of the modern world,
for them.
And if we do not respond in kind, then
their people end up better off
at the expense of our people.
As long as other countries operate for the benefit of their people,
it is our job to keep up our end of the bargain as it exists and operate
as a country for the benefit of our people. This means that we support
our companies, and expect them to bring the money they make back here, and share the returns
with us.
We The People Used To Understand Who Is The Boss
We the People (used to) understand that these companies exist for our
common benefit and (used to) expect certain things back from these
corporations. We (used to) expect them to provide high-quality products
and services and not engage in fraud and trickery. We (used to) expect
them to provide a safe and fair work environment with good wages and
benefits. We (used to) expect them to be good citizens that benefit the
communities where they operate. And our laws and enforcement (used to)
make sure they operated that way – for
our common benefit.
These understandings and expectations have disappeared. An Apple executive articulated the new corporate understanding
to The New York Times.
He said giant multinationals like Apple “don’t have an obligation to
solve America’s problems.” And to prove it, American corporations are
holding $1.7 trillion
in profits outside the country – just sitting there – rather than
bringing that money home, paying the taxes due and then paying it out to
shareholders or using it to “create jobs” with new factories, research
facilities and equipment.
We The People Have Forgotten
Citizens, elected officials and corporate management have forgotten
why we have corporations and
who
they are supposed to serve. We have instead developed a system in which
corporations exist for their own sake, doing anything they want to do,
and doing these things only to enrich the few who own and manage them.
There is no longer an understanding and expectation that these
entities – creations entirely of We, the People — are supposed to exist
for the common good of We, the People. They no longer try to provide
high-quality goods and services. They no longer feel they must avoid
fraud and trickery – and without enforcement of rules are able to gain
advantage over others that do not operate this way. They no longer
provide a safe and fair work environment with good wages and benefits.
They are not good citizens that benefit the communities
and country where they operate.
They are no longer under the control of We the People.
Are American Multinationals Really American?
For all intents and purposes giant “American” multinational
corporations have transformed into entities with completely different
interests from their American workers, customers, communities, citizens
and government. These corporations are no longer operating in the
interest of America
or any country, while claiming the benefits of being American corporations (when it suits them.)
For example, the giant American multinational corporations are now
set up and structured to avoid paying taxes here, or to any country.
They set countries against each other in their hunt for low-wage labor,
subsidies and advantages in markets.
Some companies are even “American” when it suits them, and not “American” when it does not. The post,
Unraveling The Romney/Bain Tax Story drew on a New York Times report,
Offshore Tactics Helped Increase Romneys’ Wealth. From the post:
Why is part of the same company set up based in Delaware,
and part in the Cayman Islands or Luxemburg or Bermuda? Because the
functions of the American-based company are those functions that avoid
taxes on foreign entities, and the functions of the Caymans-based part
are the functions that would have to pay US taxes if it was in the US.
But in reality it is the same company — except for tax purposes! Here
is the explanation of the foreign-based parts, from the Times article:
Had those funds been set up in the United States, the
Romneys and other American investors would probably have been subject to
certain federal taxes for their ownership of “controlled foreign
corporations.” Setting up the funds in the Caymans allowed them to avoid
those taxes.
Here is an explanation of the American-based parts,
Another appeal of offshore funds is that they help
private equity attract investment from deep-pocketed big institutions
like pension funds and university endowments. While these are generally
tax-exempt, they are liable for taxes on “unrelated business taxable
income” if they put money in funds that use debt financing to make
investments.
So why aren’t they all just foreign-based? Why do they need to have an
American-based part? One reason is that making the loans that run up the
debt that enables these companies to get the interest deductions (more
tax avoidance) would incur income taxes if the loans came from a foreign
entity,
Beyond their tax advantages, however, offshore funds
controlled by American money managers can also create new tax problems.
Those funds are limited in their ability to make loans without
triggering corporate income taxes — an issue for Sankaty funds.
Therefore, they usually have a parallel domestic fund that makes the
loans, holds them for a period before selling a portion to the offshore
fund, a practice known as “season and sell.”
And, of course, the American-based entities enable the low “carried
interest” tax rate that hedge fund managers enjoy. The company paying
Romney can’t be foreign-based,
So-called carried interest, the cut of a fund’s
investment gains earned by its managers, enjoys a favorable tax
treatment. But under I.R.S. rules, carried interest cannot be derived
from a corporation, like the offshore blockers used by Sankaty.
The American-based entities can buy American companies without incurring
“foreign-based” obligations. Then the foreign-based entities can avoid
the taxes that the American-based buyers of companies would have to
pay. And the foreign-based investors can be in the foreign-based parts
of the company, avoiding US tax obligations. Also American entities
like pension funds can avoid US taxes they would otherwise have to pay.
To put it another way, the same company can pretend it is
US-based when that is what it needs to be, and foreign-based when that
is what it needs to be.
What Can We Do?
First of all, we want and need corporations, for the reasons outlines
above. For our common benefit, to accomplish large-scale projects, and
as a result to bring shared prosperity to our citizens.
But we have to be the boss of them. We have to understand again that
We the People set up this system of corporations for our common benefit.
(Why else would we set up these things?) And we have to again call
ourselves a country.
Can we align the interests of these giant corporations with our
national, American interest? If we cannot, they should be stripped of
their American corporate privileges and be required to do the same
things as other entities that are
not wedded to the national interest. And then We the People can build and support American companies that are.
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