Corporate Tax Loopholes

This past Sunday, 60 Minutes ran a fantastic and mostly factual story on how companies are hoarding money oversees to avoid paying taxes in the U.S.  Every American should watch this video, it is that important!



Emotions run very high on both sides of this issue.  Groups like USUncut recently protested against these companies and feel strongly that the government should close these tax loopholes.  Others feel that corporations are already paying too much in taxes and the rate needs to come down.  Let us provide some perspective on this situation.

Capital flows like water.   What that means is that water will flow downhill and look for the path of least resistance.  There is nothing anyone can do to change this basic phenomenon in nature.  Water will never flow uphill on its own.  Capital will always flow to wherever it can earn the highest perceived return on investment, period.  The key word is "perceived", because the end result is not always the choice that results in the absolute highest return.  However the capital will flow wherever the decision makers "think" it will earn the highest return.   This is how capital SHOULD flow, as it results in the most productivity and value for each dollar invested.  The end result is the world we live in today, where society moves forward with new discoveries, increased productivity, and a higher overall standard of living.  It is hard for anyone to argue against this, unless they feel we would all be better off riding horses, using the Pony Express to communicate, building fires to stay warm, or going without basic pain medicine or anesthetics.  Amazingly, there are some folks that feel this way, but for the rest of us, we like the way things have progressed over the last 200 years.


Corporations are in business to earn a return for their owners and investors.  Company leaders understand that their #1 responsibility is to their shareholders, and everything they do within the limits of the law must be to drive shareholder value. Companies normally behave in a legal and ethical manner because it is in the best interest of their shareholders and doing so gives them the best chance to earn a return for those shareholders.  Corporations allows billions of people to earn an honest living and support their families, and also provide society with substantial overall benefits in terms of goods and services at a fair price set by the market.  It is hard to argue that corporations net/net have a negative impact on society in general.

Given these basic principles, let us look at the tax situation.  There is no such thing as a tax loophole or a gimmick to avoid paying taxes, as long as those tactics are legal.  The government rights the rules and the laws, with the help of almost unlimited resources in the form of attorneys, tax experts, and accountants.  Every word in the tax code is put under a microscope and analyzed to death before it is ever published.  The final results will dictate the actions of millions and millions of people and the movement of trillions and trillions of dollars.  In short, this document is unbelievably important and influential and affects every single person in this country and billions around the world.

Once the tax code is passed into law, it becomes the "rules of the game".   Any company or person that does not obey the rules should be punished to the fullest extent of the law.  However, the leaders of any entity that plays by the rules in an effort to increase shareholder value are only doing the job they were hired to do in the first place. Failure to work hard to drive down taxes, which in turn increases shareholder value, would be a breach of duty on the part of the corporate leaders.  In fact, those that would argue that companies should keep their money in the U.S. and pay their share because it is the "ethical" thing to actually have the situation completely backwards.  It would be completely "unethical" for the leader of a corporation to pay more taxes than he/she needed to just because he/she thought it was the right thing to do.  Their responsibility is to the shareholders, not the federal government.  Acting in a way that was clearly not in the best interest of the shareholders would be very unethical and the leader should be removed.

Which brings us to this piece by 60 Minutes.  If you are looking for someone to blame for these tax loopholes and the resulting loss of jobs and capital in the U.S., blame the federal government not the companies.  We must work to lower taxes in the U.S., or else we will face a declining economy for generations to come.  We are already losing millions of jobs as a result of our tax code.  Closing those tax loopholes will result in more jobs going oversees, not less.  If a company must legitimately move their entire operations oversees to increase shareholder value, they will do it in a heartbeat, and they SHOULD do it.  Our country must understand the basic nature of how capital flows and stop trying to force it to flow in a direction that is not natural.  We will always lose this battle.  The only way we will be able to lower corporate taxes to reasonable levels is to slash the federal budget and end a number of huge entitlement programs.  Yes, the pain will be substantial, but the results will lift our society up to new heights, fantastic discoveries, and renewed innovations!  We will all be better off in the long run.

Randall D. Hall

Tags: Corporate Tax Loopholes, Taxes, Jobs Oversees, Tax Dodgers, U.S. Tax Code, 60 Minutes, Lower Taxes