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Fletcher: Unintended consequences can carry bad effects

October 29, 2013
Stephen Fletcher , The Alpena News

Business votes with its feet just like you do. I will give you two serious examples of how governmental tax decisions affect corporate structures and actions and I believe that you will see the Law of Unintended Consequences at work in both examples.

You will also see why a "yes" vote is needed for the George N. Fletcher Public Library millage. All of this is connected.

When Gov. Rick Snyder rewrote the corporate tax laws for Michigan by ending the Single Business Tax, he also eliminated some business loopholes whereby corporations got tax breaks for certain expenditures. One of the perks tossed was a provision under which corporations could give $2,500 to a community college or library and have an income effect of only $200 to its income statement. It was a great deal in Alpena because there was an opportunity to gift $2,500 to the college and another $2,500 to the library for a total of $5,000, yet see only $400 on the company's income statement for that money. We did it at Alpena Power Co. for years and were happy to pass on a meaningful amount of cash to both the college and library.

Then came the elimination of that credit and the price went up on the income statement to $3,250 for the donation, or an increase in the cost of the gifts of more than 800 percent. We stopped giving as did many others. Blame it on the Law of Unintended Consequences.

If gifts are down and expenses keep increasing because of inflation, then the college and library start to get squeezed. One funding source for each is local millages and that's where you come in. Support the library millage and remember, you still can deduct your property tax millages from your personal taxes come tax time.

Several weeks ago, U.S. Sen. Carl Levin wrote a column about how unfair it is when a multinational corporation with its headquarters in the U.S. makes overseas profits and doesn't pay any U.S. corporate tax on the foreign earnings. Levin deplored this "sheltering" of potentially taxable dollars, yet the tax laws that allow it were passed while he has been in Congress.

Perigo, a profitable company from Allegan, for years has been paying its taxes at the 35 percent U.S. corporate tax rate. The drug company manufactures pharmaceuticals that are no longer protected by copyright laws. They have been marvelously profitable and recently purchased a company headquartered in Ireland. The Irish corporate tax rate is 12 percent as opposed to the 35 percent in the U.S., thus Perigo moved its headquarters to Ireland.

This is probably not what Sen. Levin envisioned. The U.S. portion of Perigo's taxes are taxed at 35 percent, but the rest of the taxable income which is earned overseas, stays overseas. With the company headquarters now overseas, any economic spinoff from those headquarters are now overseas as well.

It's only understandable that international business people want to do business in the most favorable economic climate, wherever that is. The easiest thing in the world is to become headquartered in a favorable economic climate.

If the U.S. government, through its actions and policies, makes it less desirable to conduct business here, then watch how quickly "American" companies beat a path out of here and set up headquarters in new countries. Again, blame it on the Law of Unintended Consequences.

 
 

 

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