Tilted Forum Project Discussion Community - View Single Post - Kerry's plan to end overseas corporate tax breaks

apechild · 04-13-2004, 01:13 PM

Fine, but let me first remind everyone that only profits, not revenues are taxed, and that profits are the result of revenues less expenses.

So a US firm (XYZ co) builds a semiconductor factory in Taiwan, and sells most of those semi-conductors back to US customers. The corporate income tax rate in Taiwan is 25%, whereas in the US it's 35%. Labor costs in Taiwan are lower than they are in the US, but additional administrative and legal expenses are incurred by operating in a foreign country, and additional shipping costs must also be incurred.

Under current law,
XYZ co takes in $100mm in revenues from the sale of these semiconductors back to the US market.
Labor costs are $35mm
Raw materials costs are $20mm
Overhead costs (depreciation of plant and equipment , electricity, etc.) run $5mm
Administrative expenses are $4mm
Shipping expenses are $1mm
Net income before taxes are (100-35-20-5-4-1)= $35mm
Less Taiwan corporate income taxes = 35 * .25 = $8.75
Leaves net income of 35 - 8.75 = $26.25mm

Under Kerry's proposal
all of the above remains the same except
$26.25mm less US corporate income taxes = 26.25 * .325 = $8.53
Leaves net income of 35 - 8.75 - 8.53 = $17.72mm

Meanwhile, Taiwan Semiconductor Co makes similar products and faces similar labor, materials, and administrative expenses, but is not subject to US income taxes. It uses its comparative advantage to lower prices to a level that squeezes XYZs margins dry. XYZ shuts down its facility, fires a bunch of employees, and buys pre-made components from Taiwan semiconductor, which, coincidentally, just bought a new prodcution facility at fire-sale prices and, absent any real competition, decides now is a good time to raise prices 20% across the board.

Ouch!

One last point I want to make is that kerry's pledge to "create" 10 million new jobs means that we will have to outsource more work. Why? As of March of this year, there were only 8.4 million unemployed persons in the US (source: Labor Department). That means we'll have to hire 1.6 million foreign workers to fill the rest of the jobs once our unemployment rate hits 0.0%

04-13-2004, 01:13 PM	#23 (permalink)
apechild Crazy Location: Vermont	Fine, but let me first remind everyone that only profits, not revenues are taxed, and that profits are the result of revenues less expenses. So a US firm (XYZ co) builds a semiconductor factory in Taiwan, and sells most of those semi-conductors back to US customers. The corporate income tax rate in Taiwan is 25%, whereas in the US it's 35%. Labor costs in Taiwan are lower than they are in the US, but additional administrative and legal expenses are incurred by operating in a foreign country, and additional shipping costs must also be incurred. Under current law, XYZ co takes in $100mm in revenues from the sale of these semiconductors back to the US market. Labor costs are $35mm Raw materials costs are $20mm Overhead costs (depreciation of plant and equipment , electricity, etc.) run $5mm Administrative expenses are $4mm Shipping expenses are $1mm Net income before taxes are (100-35-20-5-4-1)= $35mm Less Taiwan corporate income taxes = 35 * .25 = $8.75 Leaves net income of 35 - 8.75 = $26.25mm Under Kerry's proposal all of the above remains the same except $26.25mm less US corporate income taxes = 26.25 * .325 = $8.53 Leaves net income of 35 - 8.75 - 8.53 = $17.72mm Meanwhile, Taiwan Semiconductor Co makes similar products and faces similar labor, materials, and administrative expenses, but is not subject to US income taxes. It uses its comparative advantage to lower prices to a level that squeezes XYZs margins dry. XYZ shuts down its facility, fires a bunch of employees, and buys pre-made components from Taiwan semiconductor, which, coincidentally, just bought a new prodcution facility at fire-sale prices and, absent any real competition, decides now is a good time to raise prices 20% across the board. Ouch! One last point I want to make is that kerry's pledge to "create" 10 million new jobs means that we will have to outsource more work. Why? As of March of this year, there were only 8.4 million unemployed persons in the US (source: Labor Department). That means we'll have to hire 1.6 million foreign workers to fill the rest of the jobs once our unemployment rate hits 0.0% __________________ Skwerl. Its wuts fer dinner.