Tags: Shidlo | Obama | Bolsters | Swiss | Economy | Instead | US

Shidlo: Obama Bolsters Swiss Economy Instead of US

By    |   Tuesday, 19 Apr 2011 08:32 AM

Johnson & Johnson’s decision to buyout the Swiss company Synthes Inc. for about $20 billion is not only due to their market leadership in medical equipment but is in a clear response to President Barack Obama’s failed policy of not reducing high corporation taxes. Synthes is the world’s largest maker of implants to mend bone fractures as well as a producer of surgical power tools and bio-materials.

With a tax rate of about 35 percent, U.S. corporations have no incentive to invest their overseas profits domestically and create jobs either by hiring more locally, building new factories or taking over other U.S. companies. U.S. multinationals such as Cisco, GE, Microsoft, Google, Oracle and Apple have hundreds of billions of dollars in cash overseas.

Not only do U.S. companies have a preference to buy foreign companies rather than buying domestically and creating more jobs at home but are also transferring their headquarters to low-tax havens like Zug. The Swiss canton of Zug, with a population of about 26,000, and a low corporate tax rate of 15 percent to 16 percent has tens of thousands of companies registering there.

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Barack Obama
(Getty photo)
Many companies have relocated their headquarters to Switzerland, the most prominent ones being Transocean and Tyco International. Transferring their headquarters to low tax havens saves these companies billions of dollars a year in taxes.

Indeed, corporations have a responsibility to their shareholders and we now see pressure being put on Barclays and HSBC to relocate their headquarters from London to the United States or Hong Kong.

In order to create jobs in the U.S. and decrease the tax deficit, the Obama administration should reduce U.S. corporate taxes to a more internationally competitive level and introduce tax incentives to bring profits back from overseas. This can attract global companies to relocate to the United States as well as repatriate profits of U.S. companies.

An immediate step toward stopping U.S. corporations reinvesting their profits overseas is introducing a tax amnesty. In 2004 and 2005, there was a big tax amnesty – a temporary tax rate of 5.25 percent - a period in which U.S. companies brought back home nearly $400 billion.

Although this amnesty has been criticized for not creating many jobs, many companies opted to use a large part of their dollars for share buybacks as well as paying dividends which generate consumption from shareholders and indirectly create jobs.

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Johnson Johnson s decision to buyout the Swiss company Synthes Inc. for about $20 billion is not only due to their market leadership in medical equipment but is in a clear response to President Barack Obama s failed policy of not reducing high corporation taxes. Synthes...
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Tuesday, 19 Apr 2011 08:32 AM
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