Tuesday, July 05, 2011

But I Thought Lower Taxes Brought Investments Home?

By Carl
The Wall Street Journal whistles past the graveyard:

It is true that foreign direct investment rose to $236 billion in 2010 from $159 billion in 2009. But that was still well below the $310 billion invested in 2008. The White House also neglected to disclose that in the first quarter of 2011 foreign investment fell by 51% from the first quarter of last year, according to data released last month from the federal Bureau of Economic Analysis. Foreigners of late have not found the U.S. to be a receptive, high-return home for investment.

Much more worrisome is that Americans are taking their investment dollars abroad at a faster pace than foreigners are bringing capital to these shores. In 2010, for example, U.S. investment abroad was $351 billion—$115 billion higher than foreign investment here. Economic recoveries are periods when investment capital usually surges into a country, but since this weakling rebound began in the middle of 2009 the U.S. has lost more than $200 billion in investment capital. That is the equivalent of about two million jobs that don't exist on these shores and are now located in places like China, Germany and India.

[...] So why did the investors put their money in the U.S. in those years? We'd say it was a combination of low tax rates, a strong dollar, low inflation and other free-market reforms. Capital flows to where it is most highly rewarded, and low marginal tax rates on the returns to capital and business income create a gravitational pull on global funds. A strong and stable currency allows businesses to invest in innovation, employees and productivity rather than inflation hedges. It also encourages investors to wait longer to cash in their profits without worrying about the losses of a depreciating dollar. In the high-tax, high-inflation 1970s, the U.S. was a net exporter of risk-taking capital. As we are now.

Tax rates in Germany on businesses (foreign investments are taxed locally if invested in German companies or enterprises): 30%

Tax rates in China: 25%

Tax rates in India: 33%

Tax rates in the US: 0-35%. It was 45% and more in the "risky Seventies" the WSJ refers to. Clearly, they missed the point.

"American" companies are investing roughly one-third the current annual budget deficit abroad for...at most a ten percent reduction in taxes (nevermind the intricacies of repatriating those monies, something the Republicans have tried to make, um, easier (read: greedier).

The lion's share of this problem comes down to this: American companies are no longer American. As such, the government should treat them as illegal immigrants: decertify their recourse to the American legal system, force them to work the fields (so to speak) and suspend their "civil rights". They simply refuse to act like patriotic Americans, and I'm surprised...ok, not really, but still...surprised the Teabaggers haven't turned their attentions to these asshats.

No one blames foreigners for keeping their monies in China, Germany, and India, where growth is evident and the economy is stronger. One could make the case, however, the American investor should be encouraged to keep his money here at home, investing in businesses and enterprises that will return long-term capital gains (15%) and create jobs for Americans.

Apparently, greed runs rampant.

(crossposted to Simply Left Behind)

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