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Author Topic: I'm not sure how I feel about corporate inversions.
philnotfil
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A lot of people have been talking about this recently, but I'm conflicted. Probably unpatriotic, but makes economic sense?

A link if you have no idea what I'm talking about:
What Are "Inversions," and Why Should You Care?

quote:
A corporate "inversion" is what happens when a U.S.-based multinational with operations in other countries restructures itself so that the U.S. "parent" is replaced by a foreign corporation — and usually one that's in a country with a lower tax rate than the United States. As a result, on the whole, this means that corporate income tax that would otherwise be paid to the United States ends up going overseas.

In other words, right now, our tax code allows any American company to merge with a foreign company (so long as that company’s shareholders own 20% of the combined firm) — and then “relocate” or “invert” to another country for tax purposes. This maneuver — which changes nothing about the actual operations that continue in the U.S. — allows companies to dramatically reduce the taxes they owe in the U.S. by taking advantage of loopholes in our tax system.

Meanwhile, they would continue enjoying the benefits and protections of the American economy — provided by our tax dollars. It's a big loophole — and right now, it’s completely legal.

I'm not sure what I would be comfortable with the government doing to force companies to stay in the US, but it does seem to be problematic to have them leave.

What are your thoughts on the subject?

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Rafi
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Having the government force companies to stay in the country has a bit of a East German feel about it. Letting the Federal Govt dictate where a corporation must be headquartered is a direct invasion of free market principles, it smacks of fascism. in fact, it seems to be the very definition of it.

The best way to keep this from happening is to offer a more competitive environment so that the expense of inversion is not worth it.

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kmbboots
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Tariffs. If they are not US companies, charge them for doing business here like you would any foreign company. They are using US infrastructure; they can pay for it.
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Seriati
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Philnotfil, I'm not sure how I feel about the subject, but I do find myself asking, why does such a change result in a material tax result in the first place? I think when you dig at it, you're going to find that US tax law is actually the problem and doesn't necessarily operate in a manner that makes sense.

If you're a simple global company with operations in three countries, how should you be taxed? Should you just pay the local tax in each country on what you earn there? Or should you pay a "parent-country" tax on top of it? If two companies are indentically set up, but one claims its head quarters is in one country, and the other in a different country, should they really have a dramatically different tax result?

I think there's big issue currently with US companies when they try to bring profits from overseas back into the US (which results in a punitive tax consequence - how stupid is that?). Inversion can apparently provide some "fixes" for that, which prompts the question of why can it do so? Shouldn't there be a better option that applies to everyone?

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TomDavidson
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quote:
Letting the Federal Govt dictate where a corporation must be headquartered is a direct invasion of free market principles...
Are free market principles more important than democratic or nationalistic ones? If, for example, we were at war, would we be justified to forbid American companies from trading technology to the enemy?
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Pyrtolin
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quote:
Originally posted by Rafi:
Letting the Federal Govt dictate where a corporation must be headquartered is a direct invasion of free market principles,


IN as much as it has nothing to do with informed, voluntary transactions between producers and consumers, it has noting at all to do with free market principles. COrporations are public constructs- everything about them is defined by public regulation.

quote:
it smacks of fascism. in fact, it seems to be the very definition of it.
An argument for favoring corporate ownership based on nationalism in and of itself would be a facet of fascism, certainly. But otherwise the closest you might get is a bit of protectionism.

quote:
The best way to keep this from happening is to offer a more competitive environment so that the expense of inversion is not worth it.
That makes little sense on a number of factors- first of all "more competitive" is anathema to any individual corporation it's good for the overall market, because it drives innovation and pushes profit margins down, but to the degree that the location of corporate headquarters matters for competition, companies will favor less competitive environments, because less competition translates to higher profit margins. Perhaps you mean "more lucrative market" instead of competitive.

But in the particular case, corporate center has very little to do with competition- some people may buy from you a little more if they have a sense that you're a domestic company over an internation, but it's far easier to work around that through marketing.

To the degree that this is even relevant at all accessing an export tax on the value of the corporation less its fixed domestic assets would probably be the way to go price the behavior high enough and it won't be worth it. I'd say the better thing to do would be to ignore such absurd posturing and keep policy focus instead on actual productivity, not mostly irrelevant structural shenanigans.

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Pyrtolin
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quote:
Originally posted by Seriati:
I think there's big issue currently with US companies when they try to bring profits from overseas back into the US (which results in a punitive tax consequence - how stupid is that?).

There's nothing punitive about it. RAther they're just expected to pay their regular taxes on that revenue. It's only broken in as much as we don't just count those profits in from the start and let them defer them till they try to convert them back to US based accounts- but that lies entirely in what the point of the policy is. If we're looking to give our companies a bit of an edge and incentive to build foreign productivity, then it makes perfect sense, because it creates an incentive for foreign re-investment over profit-taking. If we're just looking to make up for lack of competitiveness by keeping pressure on margins then we may as well tax it all up front.
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Seriati
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quote:
Originally posted by kmbboots:
Tariffs. If they are not US companies, charge them for doing business here like you would any foreign company. They are using US infrastructure; they can pay for it.

You can correct me if I'm wrong, but I don't believe the issue is with US source income. The tax bill on that will be the same (which is why this is only a benefit for companies with global operations). I believe that this is true regardless of whether its a US or foreign company operating in the US - but again I could be wrong.
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Seriati
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quote:
Originally posted by Pyrtolin:
quote:
Originally posted by Seriati:
I think there's big issue currently with US companies when they try to bring profits from overseas back into the US (which results in a punitive tax consequence - how stupid is that?).

There's nothing punitive about it. RAther they're just expected to pay their regular taxes on that revenue.
They paid the tax in the jurisdiction in which the revenue was earned. Why do you think a US company should pay a second tax for re-investing those profits back in the US? A tax that a foreign company operating identically does not owe?
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philnotfil
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quote:
Originally posted by Rafi:
Having the government force companies to stay in the country has a bit of a East German feel about it. Letting the Federal Govt dictate where a corporation must be headquartered is a direct invasion of free market principles, it smacks of fascism. in fact, it seems to be the very definition of it.

Agreed.

quote:
The best way to keep this from happening is to offer a more competitive environment so that the expense of inversion is not worth it. [/QB]
Here is where I get conflicted. American corporate profits are at all time highs. American employment is at unhealthy lows. Corporations are already failing to support America, and now are looking to do even less than they already do.

This troubles me. But the only solutions I have seen proposed also trouble me.

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Seriati
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quote:
Originally posted by philnotfil:
Here is where I get conflicted. American corporate profits are at all time highs. American employment is at unhealthy lows. Corporations are already failing to support America, and now are looking to do even less than they already do.

I don't see how increasing the taxes on them will encourage them to do so. Corps these days have a relentless focus on "cost cutting", that is what is forcing people out and stagnating wages, forcing corps to bear higher costs is going to magnify that not reduce it.

What I'd like to see are better corporate incentives on paying and retaining people. Maybe give 1.2X tax credit on new hire salaries, and on every raise for employees compensated below $100,000. Maybe disallow expensing the incomes of new employees equal in value to the incomes of any laid off or discharged employees (though there are a lot of risks with that kind of policy, I'm just looking for something to discourage employee churning). Or giving tax bonuses in every fifth year of employment.

[ July 29, 2014, 01:21 PM: Message edited by: Seriati ]

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Rafi
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quote:
Originally posted by philnotfil:
Corporations are already failing to support America, and now are looking to do even less than they already do.

Is it a requirement of corporations to support America at their own expense?
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msquared
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If they benefit from selling/producing here, sure.

msquared

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Rafi
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Where is that mandated?
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DonaldD
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Where is it mandated that any particular entity be granted the protections or benefits of a corporation? Is there some kind of expectation that corporations should benefit from legal protections but should have no responsibilities to the country providing those benefits?
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msquared
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Tax law? The government says that if you operate in the US as a corporation, said corp has to pay taxes to support the infrastructure of the country?

msquared

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Rafi
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Total tax lost, from the article, is estimated at $20 billion over the next 10 years. That's about 0.05% of federal expenditures based on current spending. From a tax revenue perspective, this is meaningless.
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Seriati
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Just to be clear, what taxes are you guys concerned are being "lost"? We're really just talking about the tax on repatriated foreign income right? Corps operating as corps in the US will still be paying taxes to support the infrastructure, they'll be paying their employment related taxes, their employees will be paying taxes, they'll be collecting and paying their property taxes, sales taxes, state taxes, etc.
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Rafi
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quote:
Originally posted by DonaldD:
Where is it mandated that any particular entity be granted the protections or benefits of a corporation? Is there some kind of expectation that corporations should benefit from legal protections but should have no responsibilities to the country providing those benefits?

Do foreign companies pay applicable US taxes for their operations within the US?
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philnotfil
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quote:
Originally posted by Rafi:
quote:
Originally posted by philnotfil:
Corporations are already failing to support America, and now are looking to do even less than they already do.

Is it a requirement of corporations to support America at their own expense?
Legally, no. Morally, possibly.
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RacerX
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It's unpatriotic and should be illegal. They startup and grow as a direct result of the benefits given to them by American taxpayers, then they leave to avoid paying their fair share of taxes. If people did that we'd have the IRS on our asses. (If somehow we could split ourselves in half. Another way of showing that the Citizen's United decision was bull****.) And corporations are people too, my friend.

Rafi, would you ask the same questions about people? Are you against all taxes or just taxing corporations?

[ July 31, 2014, 01:47 AM: Message edited by: RacerX ]

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Seriati
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quote:
Originally posted by RacerX:
It's unpatriotic and should be illegal. They startup and grow as a direct result of the benefits given to them by American taxpayers, then they leave to avoid paying their fair share of taxes.

What taxes are they not paying their fair share of? I mean that as a serious question, what income is it that you think they are not paying taxes on but should, or should be paying more on, and why?
quote:
If people did that we'd have the IRS on our asses. (If somehow we could split ourselves in half. Another way of showing that the Citizen's United decision was bull****.) And corporations are people too, my friend.
If you work overseas should you pay full local taxes, and then have to pay US income taxes on the same income? Is that really what you are arguing? Some countries have very high tax rates, when you combine that with the US rate you may not even have enough to live.
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Rafi
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quote:
Originally posted by RacerX:
It's unpatriotic and should be illegal. They startup and grow as a direct result of the benefits given to them by American taxpayers, then they leave to avoid paying their fair share of taxes. If people did that we'd have the IRS on our asses. (If somehow we could split ourselves in half. Another way of showing that the Citizen's United decision was bull****.) And corporations are people too, my friend.

Rafi, would you ask the same questions about people? Are you against all taxes or just taxing corporations?

I am not against all taxes, corporate or personal. I'm not sure why you even asked that.

However, I find it questionable that we would base anyone's patriotism on the level of taxation they are willing to endure.

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KidTokyo
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"Free markets" and "corporations" have nothing to do with one another. Corporations are powerful, privileged entities established and maintained by state governments. No government, no regulations, no corporation.

Even on strict libertarian grounds, we have an inherent right to regulate business entities that depend upon the people's government for their very existence.

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Rafi
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How much taxation and regulation do you think corporations should endure in order to sufficiently prove their patriotism and gratitude to the people's government?

I also wonder, what are the other inherent rights of the people's government?

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KidTokyo
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quote:
How much taxation and regulation do you think corporations should endure in order to sufficiently prove their patriotism and gratitude to the people's government?
I said nothing about patriotism and gratitude -- both are irrelevant as far as I'm concerned. Corporations should be subject to democratic control, just like any other governmental expenditure.

Any business owners who find such strictures onerous should consider keeping their companies privately held. Limited liability is a state-granted privilege, not a natural right.

quote:
I also wonder, what are the other inherent rights of the people's government?
Being short on time, I refer you to Locke, Hobbes, Marx & Engles, Proudhon, and a whole host of others who have argued about it at length.

I would say the rights of government are whatever the people grant to it willingly.

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Rafi
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It's the mix of terminology and concepts that I find confusing. Corporations are funded by government? Government has rights? "Democratic control" of corporations? What's that look like in your view?
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TomDavidson
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Corporations are enabled and supported by government. They would not exist without them.

Neither they nor governments have any rights.

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PSRT
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quote:
I'm not sure what I would be comfortable with the government doing to force companies to stay in the US, but it does seem to be problematic to have them leave.
Why should we care where the corporations headquarters are? We should simply tax the business all corporations do within the US, and not worry about where the mail is delivered.
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Lloyd Perna
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quote:
Originally posted by PSRT:
quote:
I'm not sure what I would be comfortable with the government doing to force companies to stay in the US, but it does seem to be problematic to have them leave.
Why should we care where the corporations headquarters are? We should simply tax the business all corporations do within the US, and not worry about where the mail is delivered.
We do. Corporations Headquartered in the US also have to pay tax on their overseas business. So moving the HQ to Ireland for instance gets them a lower tax rate on that international part.

I don't see any problem with this. If we want to keep these businesses in the US we need to adjust our Tax rates to be more competitive with other countries.

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KidTokyo
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quote:
It's the mix of terminology and concepts that I find confusing. Corporations are funded by government? Government has rights?
A corporation is an "entity" distinct from its owners, managers, and employees. It has special privileges and legal powers that can only be granted by a state. Limited liability of shareholders, "personhood", and so on. None of these things can even theoretically occur without state action. And it is precisely these features that enable corporations to make a lot more money (in most cases) than a private business.

I bring this up only because all of this conscientious hand-wringing about corporate regulation being un-American or anti-freedom is both unnecessary and horribly misguided. Do we have the right to regulate corporations? Do I dare eat a peach?

We have a right to regulate them however we see fit for the same reason that you have a right to negotiate the terms of any contract you sign your name to.

quote:
"Democratic control" of corporations? What's that look like in your view?
Stakeholders, not just shareholders, would have the power to vote managers in our out, and/or approve company policy. Ergo, the "fiduciary duty" of managers would extend to employees and, in the case of larger companies, communities and states. This is only fair. It is manifestly dangerous to create an immensely (and unnaturally) powerful economic entity and then allow it to operate untethered by any kind of social contract. Free-market principles cannot operate when the strongest get all the steroids.
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Rafi
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I'd actually never heard of "corporate inversion" before but now it's popular. And it's starting to get, frankly, a little creepy. President Obama said last week, "..., I want an economic patriotism that says we rise or fall together, as one nation, and as one people." This was met with applause.

If that weren't enough, Jonathan Adler in the Daily ?Beast writes
quote:
Even if comprehensive tax reform miraculously passes, it wouldn't reduce the corporate tax rate enough to stop the desertions. That's because other countries have slashed their corporate taxes or eliminated them altogether.

So it's time for red-blooded Americans to take matters into our own hands. My answer is to make every corporation sign something.

Sign what? If Republicans cared about this issue, which most don't, they would revive McCarthy-era loyalty oaths, where people were forced to swear that they weren't communists.

He then calls for Obama to use his legislative authority to draft, pass and implement a new law
quote:
For those companies less able to act as Americans or recognize their real interests, there are two ways to make this work. The president should issue an executive order that says any company that wants to keep its federal contracts must sign a new-fangled [non-desertion agreement]...

But other companies with few or no federal contracts might be tempted to desert anyway.

That's where the rest of us come in. Under my scheme, companies that sign non-desertion agreements would embed a tiny American flag or some other Good Housekeeping-type seal in their corporate insignia for all to see, just as companies during the Great Depression that agreed to Franklin Roosevelt's recovery plan hung an emblem of a blue eagle in their windows with the legend, "We Do Our Part."

I cannot be the only one seeing something wrong with this picture and the destination such rhetoric has traditionally led.
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TomDavidson
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I see nothing wrong with requiring that corporations which receive federal money keep their money in the country. Here in Wisconsin, we've found that 80% of the corporations to which we gave state money over the last decade wound up outsourcing jobs or moving their headquarters, and of course there's no penalty; in one particularly egregious case, we gave $80 million to a company specifically to keep it in Janesville, only to have it relocate four months later to Mexico. I can see only positives to ensuring that such "gifts" come with a few strings to prevent that behavior.

We owe the corporations of the world no favors. America recognizes and creates corporations to benefit the American economy; when they cease to do so, they should be brought into line.

(As a side note: I would much rather that corporations not receive money, even tax breaks and TIF (which in particular is the biggest boondoggle in local politics.) But if they have to be bribed, let's put some teeth into those bribes.)

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Rafi
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Do you see anything wrong with anyone taking federal dollars being required to sign "McCarthy-era loyalty oaths"?
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TomDavidson
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That's Adler's shorthand, and not something anyone is actually demanding. His actual proposal -- that companies receiving federal dollars must remain patriated, and that companies which do not receive federal dollars may be permitted to use special branding to indicate that they have pledged to keep their money on American soil -- doesn't seem all that scary to me.
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KidTokyo
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quote:
Do you see anything wrong with anyone taking federal dollars being required to sign "McCarthy-era loyalty oaths"?
Would you lend someone money if you thought they might leave the country forever?

It's you, the taxpayer, that is providing the money after all.

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KidTokyo
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Of course, it's worth asking, who the hell cares if they do leave? We can always make more. Or live without them. Incredible the unquestioning reverence we have for these institutions.

My main concern is that I get what I pay for. I don't like having my limited funds get misappropriated.

[ August 05, 2014, 01:30 PM: Message edited by: KidTokyo ]

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Rafi
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quote:
Originally posted by KidTokyo:
quote:
Do you see anything wrong with anyone taking federal dollars being required to sign "McCarthy-era loyalty oaths"?
Would you lend someone money if you thought they might leave the country forever?

It's you, the taxpayer, that is providing the money after all.

Are these loans from the federal government we're talking about or taxes? A loan, I'd expect a pay back and there are legal mechanisms in place to collect.
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Rafi
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quote:
Originally posted by TomDavidson:
That's Adler's shorthand, and not something anyone is actually demanding. His actual proposal -- that companies receiving federal dollars must remain patriated, and that companies which do not receive federal dollars may be permitted to use special branding to indicate that they have pledged to keep their money on American soil -- doesn't seem all that scary to me.

that's not what I asked.

Anyone receiving federal dollars must remain patriated, sign loyalty oaths and display special branding. Would that be OK or kind of scary?

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KidTokyo
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quote:
Are these loans from the federal government we're talking about or taxes?
I used "loan" as a personal example to illustrate simply that you would not want to bind yourself in a contract of any kind with someone who may leave the jurisdiction instead of delivering the expected benefit for which you pay them.

You pay taxes. The government provides you with services in return (whether you get value on the dollar is a separate question, we deal here only with the basic principle of the transaction).

Among those services -- the formation of corporate entities, the active and expensive policing of their many transactions to prevent fraud and waste(which reduces efficiency), the support of the courts for their litigation, the benefit of state infrastructure, policing, and communications services, and the occasional bailout.

In return, the state expects to be able to collect tax revenue from corporate income to pay for more state services, and to have its citizens employed.

So you, the taxpayer, have a direct financial interest in making sure that a corporation delivers to the State in accordance with what it takes by supplementing your economic well-being -- as opposed to sucking it dry until it's a bloodless husk.

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