Wednesday, May 6, 2009

What Closing Tax Loophles Means for Chauffeured Car

On Monday, Team Obama proclaimed that tax shelters and loopholes would be closing in 2011, and that corporations who do business outside of the country would have to pay taxes not only to the foreign countries, but the United States as well. This is good and bad.

Lets talk about the good first. Some shell corporations and individuals hide money overseas (Cayman, Bahamas, Switzerland, etc.) and get away with paying little or no taxes. This is bad and in the words of Joe Biden, "unpatriotic." It is an American's duty to pay taxes, however it is not patriotic by any means to pay more than you should. But, the simple fact remains that some get away with it and it is wrong.

Now the bad. This has a myriad of unintended consequences. Of the CEO's and investors I've talked with over the past few days, this new regulations will weaken the American economy. Here's why.

Corporations pay corporate income taxes in countries in which they do business. For instance, ABC Corp, who is a US registered corporation, will pay income taxes to Mexico if they sell their product or generate any type of revenue based on their activity in Mexico. Then, because of laws that are currently in effect, ABC Corp could leave this money in Mexico and not pay taxes to repatriate the money back to the United States. New legislation would require the companies now to pay income tax not only to the foreign country, but to the US as well, essentially double taxation.

Lets theorize that ABC is making 20% profit after taxes in the foreign country. Now with an additional tax due to the U.S., ABC Corp decides that the profit is now not enough to operate in in Mexico, and even all foreign countries. Plants shut down that export goods, offices abroad close down (that means less travel!) and the U.S. economy becomes smaller because not only are companies choosing not to pay extra to Uncle Sam, the companies are now uncompetitive in the market.

This legislation, smartly designed to take effect in the next congress, is just more government noses getting where they shouldn't be. Its the unintended consequences, President Obama, that we have to worry about. Just because communism looks great on paper, we know what the reality is. I am saying now that these higher taxes specifically, because they effect so many corporations in this globalized marketplace, will severely hurt the chauffeured car industry. Less travel, less employees and smaller economy would wreck havoc on our industry.