Tags: Congress | tax Inversions | share Values | stock

Congress Using Inversions to Convert Investor Share Values to Tax

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Sunday, 29 Nov 2015 06:31 PM Current | Bio | Archive

How can Congress raise taxes on investors without the investors even realizing it?

Actually it is easy.

They call it corporate taxation.

Congress, Wall Street, and all their economists and analysts portray corporations as living, breathing creatures unconnected from other human beings like investors.

Corporations are legal fictions. In the real world of money, they are us.

The value of those corporations, like the big multi-national ones that earn billions of dollars, euros, rupees, yuan, shekels, pounds, and many other currencies, are what support our individual financial security and future.

We depend on those corporations succeeding in a fiercely competitive world.  Otherwise, our pension and retirement plans, insurance policies, sources of major investment capital, and just about everything in our economy could become worthless.

According to the Financial Dictionary, earnings per share is simply a company’s earnings (profit after tax) divided by the number of ordinary shares.

The important part of that definition is that whatever the corporation pays in tax is deducted from profit. This means the valuation of the share price is reduced by whatever the government takes as its pound of flesh, so to speak.

Government doesn’t take earnings for tax payment, it takes cash.

Cash is the lifeblood of every business. When the government takes cash from a corporation, the company’s ability to generate shareholder value for another day is put at risk.

Corporations, however, are run by smart people who understand this. What they do is treat tax as another cost.  Everything the company spends money on to produce a product or service for sale is a cost.  Customers or clients’ then buying stuff creates earnings.

Since corporations must show earnings per share after tax, the tax paid over to the government becomes part of the purchase price which the buyer of the product or service pays.

Essentially, corporate tax is effectively the same as a pre-paid sales tax.  The corporation may write a check to the Treasury up front, but the buyer reimburses the company just like it does for the other costs for which it writes checks.

Republicans and Democrats in Congress understand that in an election year they have to bring home the bacon to get re-elected. But in paying for it they can’t overtly just raise taxes on investors.  Then people would realize that all that pork is not free.

Instead they go to the tried and true method of stealth taxation of investors.  The method of choice this time is to stick it to the multi-national corporations who have built up cash reserves despite the best efforts of Congress to drain them dry.

Who gets the benefit of that cash generated by the private sector is what the battle about corporate inversions is all about.

It is in the investor’s best interests (as it is for the directors, officers, labor, and suppliers) for the corporation to have a healthy earning per share.  It’s good that the companies have solid cash reserves to survive in a rough global economy.

Countries should also compete against each other to attract corporate business. 

Government wants competition is the private sector, and investor’s should similarly want competition to reign in the public sector.

Inversion political outrage will play a big part in Congress’s attempt to distract investors from realizing they are being stuck with yet more tax.

Don’t get sidetracked.

What Congress is trying to do with prohibiting multi-national corporate inversions is to surreptitiously convert the per share value of the investors stock holdings into more tax. 

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Kleinfeld
What Congress is trying to do with prohibiting multi-national corporate inversions is to surreptitiously convert the per share value of the investors stock holdings into more tax.
Congress, tax Inversions, share Values, stock
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2015-31-29
Sunday, 29 Nov 2015 06:31 PM
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