Wednesday, July 22, 2009

Where Have All The Dollars Gone?

While California leads the pack in suffering from the contracted economy, our increased production abroad has given impetus to businesses and governments outside the U.S. where the dollar increasingly migrates. Taxes paid abroad were a greater proportion of their layout for reporting U.S. business than taxes paid at home.

This makes ever more ridiculous the right wing's continuing complaint about the U.S. tax rate's being prohibitive, a complaint that ignores actual payments - which take advantage of multitudes of 'tax breaks' - that total far less than individuals' tax payments. While our infrastructure deteriorates, our business community blithely throws its dollars at economies and infrastructure outside the U.S. This is supposed to be sound policy for increasing profits. The fact that it ignores the source of those profits has escaped our brilliant business conceptualizers until now.

American multinationals have long tapped foreign markets to take advantage of lower labor costs, looser regulations, and simpler tax structures that can make doing business overseas more cost-efficient than in the U.S. But it's not just jobs migrating abroad -- it's now tax dollars too, a senior index analyst at Standard & Poor's says. [S&P, like BusinessWeek, is owned by The McGraw-Hill Companies.)

Last year marked the first time that American companies contributed more to the tax pools of foreign governments than they did domestically, according to analyst Howard Silverblatt's annual S&P 500 Global Sales report, released July 14. The study was based on income taxes paid and reported to the U.S. government by just over half the companies on the S&P 500. Companies are not obligated to provide such detailed breakdowns of foreign sales. In 2008 foreign income tax payouts accounted for more than 55 percent of their total income tax expenditures, up from 45 percent in 2007 -- an $11.5 billion increase. Federal income tax payouts declined 29 percent, or almost $44 billion, over the same period.

This trend has been occurring for some time. Over the past four years, U.S. companies have increasingly paid a higher percentage of their total income taxes to foreign governments, which accounted for 45 percent in 2007, up from 39 percent in 2005. But Silverblatt's findings represent another data point among many showing that the U.S. was hit harder than many foreign countries in 2008 as the global financial crisis picked up steam. While the U.S. economy contracted, emerging economies grew to take market share.

The attitude the business community has taken toward our own economy, that economy they depend on for sales, is enriching economies abroad while impoverishing the very consumers the businesses count on.

It's been noted by an increasing community of observers I communicate with on the internet, that our businesses that send their salaries abroad are cutting off their own sales objectives. The goose that laid the golden eggs - for sales in the U.S. - is the discretionary income. That's the amount we have to spend on non-essentials. That spending is where the deepest cuts occur in times when jobs and salaries disappear. Where is the genius in some Business School formulating a new lesson in how to keep sales by directing salaries and jobs to those consumers you sell to?

That scream you hear from domestic businesses is the echo of that death call of their source of golden eggs - it's a lesson business executives never seem to learn.

Emerging economies are a hopeful sign, but for the most part their governments harness resources to keep their own economies growing. Our right wing ideological tilt over the past maladministration did the opposite. As a result, we are in deep financial trouble. Shouldn't that lesson be obvious?

By directing their development efforts abroad, U.S. businesses are eating themselves. Those CEOs depending on cutting costs by paying salaries in third world economies are now selling into that salary level. They should themselves be getting accustomed to those third world salaries, as its their choice.

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