The United States & Global Economic Development and Tax Policy – by George Mentz, JD, MBA, QFP, CWMPosted October 7th, 2012
The United States population is about 311 million people which represents about 4.5 percent of the worlds’ 7 billion viable consumers. For the United States to remain a world leader in business, it must remain competitive on a global level with regard to government effectiveness, economic development for entrepreneurial growth, and the costs of doing business.
Because of globalization, people and business no longer need to be based in the USA for success or even rely on the US for survival. Businesses and people in the USA can move out of the country and become successful in many regions of the world including: Latin America, Russia, Arabia, India, Asia, Africa, the West Indies, and specifically city states such as Dubai or Singapore. Many of the reasons people go offshore are for logistics, to sell to the global customer, and to take advantage of favorable business environments. Some countries even offer the ability for retained earnings enabling tax-deferred reinvestment and capital growth offshore. Allowing retained earnings lets companies to grow and reinvest rapidly and locally without ongoing tax regulation and filings, and seems to keep more money flowing in local regions. In countries like the USA, you must pay taxes and fees as you go either quarterly or at the end of each year, but there is no way to retain the revenues past fiscal year-end and invest it without involving complex tax regulations, filings, disclosures, or penalties.
Within the jurisdictions of the USA, the same holds true, people and business go to where there is the least friction and lower: red tape, regulation, litigation, fees, waste, corruption, and other economic costs. And guess what, if a business is relocating in one of the 50 US states or territories, there is competition between the jurisdictions. Any relocating company can freely ask the state officials the question, “what can you do for us”, and the state economic development folks will begin dancing, singing, and offering tax and other incentives for the company and its’ employees to move into their jurisdiction.
The point is that the United States will need to engage the same economic development both internally and externally to make our federal environment more fair and friendly to insiders and outsiders who want to invest in America. The dirty secret is that people from inside the USA and outside in developed countries want a token of good faith, a fair system, investor protection, and a good legal system. Moreover, they want to have confidence in America, it’s leaders and the system of business law. However, if the structure smells like a costly bureaucratic shakedown, then international investors will not invest in the USA.
To compare tax rates, in the USA, you pay federal income tax, state income tax, sales taxes, and also corporate taxes. Keep in mind, these taxes are paid before the individual can invest the money in their local or regional community where it would also be taxed.
The federal tax rate in the United States for corporations is 35% plus potential state taxes which is higher than most countries around the world. Higher than Indian’s 33% base rate, and China and Brazil’s initial corporate income tax of 25% and higher than Russian corporate tax which is 20%. See KPMG Tax Table. Whereas, there are countries with extremely competitive rates, safe jurisdictions, and available talent in the region. Various examples would be: Singapore, Czech Republic, Lithuania, Bermuda, Bahrain, Montenegro, Macau, Qatar, Paraguay and others.
In contrast, Dubai which is a major city state government and emirate within the United Arab Emirates allows for a corporate styled LLC Limited Liability Company which has no corporate taxes, no income tax and no retained earnings taxes. Much of Dubai’s government revenues come from annual fees for services and the expatriates & foreign companies that locate there.
The focus of this analysis is not just corporate tax rates, but the TBDB Total Burden of Doing Business versus total benefits for member loyalty. As with any credit card , if you do not like their fees and rewards, you can dump them for a better card with better rewards such as Visa, MasterCard American Express and Discover. VISA (NYSE: V[FREE Stock Trend Analysis]) MasterCard (NYSE: MA) American Express (NYSE: AXP) and Discover (NYSE: DFS). The same value proposition will draw the creators, producers, and contributors to the best service provider.
Going forward, it is my view that the most successful economies in the world will have strategies to provide benefits to those who locate in their country to do business. In the end, the citizens of these forward-thinking countries or jurisdictions will reap the benefits of such international respect and good will. During this political season, we hear reporters asking generic tax reform questions such as “Show Me the Math; yet, there is an incredibly simple answer that was provided to me by a old farmer with a 4th grade education. The answer is that, “50% of nothing is still nothing”, and the countries that promote good will and economic incentives will be rewarded with 10 or even up to 20 percent of the revenues from top companies including much of world investment and trade.
With all of this being said, volume businesses such as WalMart (NYSE: WMT) or Amazon (NASDAQ: AMZN) create vast revenues based in incentives, pricing, customer satisfaction and value. As such, the centers which promote economic fairness, freedom and security will become super-hubs of free markets, prosperity, and success for the long-term. This is just one more reason why management consulting firms such as Booz Allen Hamilton (NYSE: BAH) and international law and accounting firms such as Accenture (NYSE: ACN) will continue to flourish while international online education such as law schools for tax and finance such will also expand enrollment. See TJSL Online Graduate Tax Program
In the end, strategic government policy is the key to developing GCA or “Global Competitive Advantage” and also the secret to bringing new business into your country where relocated or new companies hire more local people, create local and national economic activity, and ultimately the key to revenue generation.
About the Author: Dr. George Mentz JD, MBA, CWM – Mentz is a world recognized Certified Chartered Wealth Manager and award winning professor who has authored several revolutionary books. Prof. Mentz, an international attorney, has been a keynote speaker globally in Asia, Arabia, USA, Mexico, Switzerland, and in the West Indies. Mentz can be contacted for speaking engagements at www.gmentz.com or www.managementconsultant.us or www.selfhelpbook.org Mentz is a licensed attorney and CWM Chartered Wealth Manager
Mentz is part of the National Underwriter Panel of Experts for Advisor FX and FYI http://www.advisorfyi.com/expert/
*No tax investment or legal advice provided herein. Please consult with a licensed professional in your jurisdiction before making any important financial or legal decision.
TJSL Thomas Jefferson School of Law Graduate Tax and Finance http://llmprogram.tjsl.edu
Global Tax Table from KPMG http://www.kpmg.com/global/en/whatwedo/tax/tax-tools-and-resources/pages…
AAFM American Academy of Financial Management
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