U.S. Firms Move Abroad to Cut Taxes

More big U.S. companies are reincorporating abroad despite a 2004 federal law that sought to curb the practice. One big reason: Taxes.

Companies cite various reasons for moving, including expanding their operations and their geographic reach. But tax bills remain a primary concern. A few cite worries that U.S. taxes will rise in the future, especially if Washington revamps the tax code next year to shrink the federal budget deficit.

“We want to be closer to where our clients are,” says David Prosperi, a spokesman for risk manager Aon AON +0.21% plc, which relocated to the U.K. in April.

Aon has told analysts it expects to reduce its tax rate, which averaged 28% over the past five years, by five percentage points over time, which could boost profits by about $100 million annually.

Since 2009, at least 10 U.S. public companies have moved their incorporation address abroad or announced plans to do so, including six in the last year or so, according to a Wall Street Journal analysis of company filings and statements. That’s up from just a handful from 2004 through 2008.

The companies that have moved recently include manufacturer Eaton Corp., ETN -1.02% oil firms Ensco International Inc. ESV -2.46% and Rowan Cos., RDC +0.33% as well as a spinoff of Sara Lee Corp. called D.E. Master Blenders 1753.

Eaton, a 101-year-old Cleveland-based maker of components and electrical equipment, announced in May that it would acquire Cooper Industries PLC, another electrical-equipment maker that had moved to Bermuda in 2002 and then to Ireland in 2009. It plans to maintain factories, offices and other operations in the U.S. while moving its place of incorporation—for now—to the office of an Irish law firm in downtown Dublin.

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Many Afghans Shrug at ‘This Event Foreigners Call 9/11’

he Sept. 11 attacks that triggered the U.S. invasion of Afghanistan also uprooted 16-year-old Abdul Ghattar from his village in war-torn Helmand province, bringing him to a desolate refugee camp on the edge of Kabul.

Yet Mr. Ghattar stared blankly when asked whether he knew about al Qaeda’s strike on the U.S., launched a decade ago from Afghan soil.

“Never heard of it,” he shrugged as he lined up for water at the camp’s well, which serves thousands of fellow refugees. “I have no idea why the Americans are in my country.”

In a nearby tent that is the camp’s school, his teacher, 22-year-old Mullah Said Nabi Agha, didn’t fare much better. He said he has never seen the iconic image of the Twin Towers burning. He was vaguely aware that some kind of explosion had occurred in America.

“I was a child when it happened, and now I am an adult, and the Americans are still here,” Mr. Agha said. “I think the Americans did it themselves, so they could invade Afghanistan.”

The teacher’s view is by no means rare here. The events of Sept. 11, 2001, of course, are known to educated Afghans, and to many residents of big cities. But that isn’t always the case elsewhere in a predominantly rural country where 42% of the population is under the age of 14, and 72% of adults are illiterate. With few villages reached by television or electricity, news here is largely spread by word of mouth.‬

Such opinions highlight a contrast between American and Afghan perspectives on the longest foreign war in U.S. history, one that killed thousands of Afghans and, at the latest count, claimed the lives of 1,760 U.S. troops.

They also explain the Taliban’s ability to rally popular support—in part by seizing the narrative to portray the war not as one triggered by America’s need for self-defense, but as one of colonial aggression by infidels lusting for Afghanistan’s riches.

“The Islamic Emirate wages a lawful struggle for the defense of its religion, country and soil,” the Taliban’s leader, Mullah Mohammed Omar, told Afghans last month on the occasion of the Islamic Eid al-Fitr holiday.

According to a survey of 15- to 30-year-old men in the two southern provinces where President Barack Obama sent the bulk of American surge troops, 92% of respondents said they didn’t know about “this event which the foreigners call 9/11” after being read a three-paragraph description of the attacks.

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Budget Deal Hits ObamaCare

The budget deal reached Friday would affect two initiatives contained in last year’s health-care law that were bitterly opposed by businesses, killing one outright and slashing funding for the other.

The agreement would eliminate a provision of the health-care law enabling low-income workers to opt out of employer-offered health insurance and shop for more affordable coverage on insurance exchanges to be created in 2014, according to congressional aides and business groups.

Under the provision, employers would have had to help pay for the insurance purchased on the exchange. Ending the program would save the government $4 billion over 10 years, but it wouldn’t result in any immediate spending cuts because it isn’t set to begin for three years.

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ObamaCare: Don’t say you weren’t warned

Yesterday’s Wall Street Journal editorial page told the remarkable story of some senior citizens who desired to opt out of Medicare coverage without losing their social security benefits. They were willing to pay their medical costs entirely by private means. Rules that originated in the Clinton administration tied Medicare benefits to social security benefits, requiring mandatory acceptance of Medicare coverage in order to retain social security benefits. A federal judge initially sided with the seniors as recently as fall 2009 and later completely reversed her decision.

One has to wonder why the federal judge completely reversed her original decision. Apparently the Obama administration took a strong interest in this court case. The twisted logic the judge presented to support her reversal is stunning. The implications of this Chicago style compulsion are ominous.

More on Climate Change

Last week a severe storm froze Dallas under a sheet of ice, just in time to disrupt the plans of the tens of thousands of (American) football fans descending on the city for the Super Bowl. On the other side of the globe, Cyclone Yasi slammed northeastern Australia, destroying homes and crops and displacing hundreds of thousands of people.

Some climate alarmists would have us believe that these storms are yet another baleful consequence of man-made CO2 emissions. In addition to the latest weather events, they also point to recent cyclones in Burma, last winter’s fatal chills in Nepal and Bangladesh, December’s blizzards in Britain, and every other drought, typhoon and unseasonable heat wave around the world.

But is it true? To answer that question, you need to understand whether recent weather trends are extreme by historical standards. The Twentieth Century Reanalysis Project is the latest attempt to find out, using super-computers to generate a dataset of global atmospheric circulation from 1871 to the present.

As it happens, the project’s initial findings, published last month, show no evidence of an intensifying weather trend. “In the climate models, the extremes get more extreme as we move into a doubled CO2 world in 100 years,” atmospheric scientist Gilbert Compo, one of the researchers on the project, tells me from his office at the University of Colorado, Boulder. “So we were surprised that none of the three major indices of climate variability that we used show a trend of increased circulation going back to 1871.”

In other words, researchers have yet to find evidence of more-extreme weather patterns over the period, contrary to what the models predict. “There’s no data-driven answer yet to the question of how human activity has affected extreme weather,” adds Roger Pielke Jr., another University of Colorado climate researcher.

We do know that carbon dioxide and other gases trap and re-radiate heat. We also know that humans have emitted ever-more of these gases since the Industrial Revolution. What we don’t know is exactly how sensitive the climate is to increases in these gases versus other possible factors—solar variability, oceanic currents, Pacific heating and cooling cycles, planets’ gravitational and magnetic oscillations, and so on.

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The Pelosi Minority: The Speaker decides to reward herself for an epic defeat.

We’re beginning to wonder if any Democrats take responsibility for this week’s election rout. President Obama blamed it Wednesday on a failure to communicate rather than substance, and now Speaker Nancy Pelosi is making a bid to keep her job as House Democratic leader. Lose 61 seats? Whatever.

As an historical matter, Mrs. Pelosi’s announcement yesterday was almost as extraordinary as the election itself, which saw the largest turnover of House seats since 1938. Speakers almost always resign after an electoral repudiation—even Newt Gingrich, who stepped down after the GOP lost a handful of seats in 1998 while retaining the majority. The last Speaker who accepted a demotion to minority leader was Democrat Sam Rayburn in 1946, who reclaimed the gavel two years later on Harry Truman’s coattails.

Presumably Mrs. Pelosi is entertaining similar hopes, which suggests that Democrats really do believe their own post-election spin. How else to explain her bid as a matter of political logic?

Remaining in power deprives her party of one of its better opportunities to show the public that Tuesday’s message was received. Even if Democrats have no plans for a policy turn, sacrificing the unpopular Mrs. Pelosi might stand as a down payment on winning back the trust of the independent and suburban voters who fled Democrats this year. Something like a dozen House Democrats ran against her as much as they did against their GOP opponents.

Nonetheless, in her letter to the Democratic caucus, Mrs. Pelosi eulogized “the most productive Congress in a half century,” adding that “Our work is far from finished.” (Cue the string section.) “We have no intention of allowing our great achievements to be rolled back,” she continued, citing ObamaCare, financial reregulation and job noncreation programs like the stimulus, with unspecified threats to Social Security and Medicare thrown in at no extra charge.

In other words, Mrs. Pelosi thinks she should remain in power to preserve the agenda that forfeited the House. And she may well succeed, not least because of her fund-raising and proven log-rolling skills that were necessary to pass some of the worst legislation in generations.

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Financial Overhaul Provision to Promote Diversity Hiring in Federal Agencies Stirs Backlash

In this Oct. 28, 2009 file photo, Rep. Maxine Waters, D-Calif. , is seen on Capitol Hill in Washington. (AP)

Fox News

In the financial overhaul bill that is on the cusp of becoming law, House Democrats have included a largely overlooked provision that would create diversity czars to promote racial and gender hiring in federal agencies — a move that has sparked concerns about racial quotas, government waste and charges that Democrats are attempting to politicize the Federal Reserve.

The bill would establish an Office of Minority and Women Inclusion at each federal financial services agency to “ensure equal employment opportunity and the racial, ethnic and gender diversity” of the work force and senior management.

The diversity czars would also aim to “increase the participation of minority-owned and women-owned businesses in the programs and contracts” of each agency and conduct “an assessment” of those goals.

Each diversity czar would be a presidential appointee who must be confirmed by the Senate and have power “comparable to that of other senior level staff,” the bill says.

In an editorial, The Wall Street Journal accused Rep. Maxine Waters, D-Calif., author of the provision, of trying to politicize the Federal Reserve.

“The Waters provision will also give Congress and the White House a new and powerful lever to influence the operation of the 12 regional Fed banks,” the newspaper wrote. “Accusations of racial or gender indifference, much less outright bias, are politically deadly.”

“With the threat of such an accusation in their holster, the Waters czars will have enormous clout to influence Fed governance and regulatory decisions, perhaps including monetary policy,” the newspaper added.

Waters’ office did not respond to a request for comment but the lawmaker vigorously defended the provision in a letter to the editor of The Wall Street Journal, saying the newspaper’s critical editorial was “filled with misrepresentations, unsupported conclusions and outright distortions.”

“Nothing in the bill mandates lending to minorities or women,” she wrote, denying charges that the provision would politicize the Fed or allocate credit by race and gender. “The provision does not even mention lending. The offices will only be responsible for employment, management and business activities of the agencies.”

“What this legislation will do is help address an indisputable problem, the lack of diversity in financial services,” she said, arguing that studies show the “discrimination that women and minorities face compared to white men of similar educational background and age.”

Waters cited the Treasury Department where minorities make up 17.2 percent of employees at senior pay levels and a recent Government Accountability Office report that shows the lack of diversity within the financial services industry has barely improved at the management level from 1993 to 2008.

“The provision is designed to broaden and improve the work force of these agencies and expand opportunities for our nation’s small businesses – including minority-and women-owned businesses – to participate in programs and contracts instead of continuing to rely on the same ‘old boy’ network and handful of Wall Street firms responsible for the crisis in the financial markets.”

The provision remained in the legislation during a conference committee between House and Senate negotiators. The House approved the final version of the bill late last month but the Senate delayed its vote until after the July Fourth holiday.

Diana Furchtgott-Roth, an adjunct fellow at the Manhattan Institute and a senior fellow at the Hudson Institute, said the bill should be sent back to conference stripped of this provision, citing concerns about racial quotas and costs.

“The chief concern is that you’re moving from a situation where discrimination is prohibited, which is well and good and that is established law, to a situation where there are quotas in the workplace,” she told FoxNews.com, contending that the law would extend the provisions to contractors and subcontractors – a situation that could lead to quotas in the private sector. “And those are two very, very different things.”

The law would create at least 20 new offices and up to 29 if every Treasury agency is required to create a minority office, she said.

“It would probably cost a million or over” to operate on an annual basis for each office, she said.

Furchtgott-Roth also noted that the Cabinet-level department all have similar offices in place and questioned why more is needed.

“This is a very serious concern,” she said. “We have a deficit of over a trillion dollars. Every American knows that we need to cut the deficit and not only is this a waste of money
but it implies that the existing offices we have are a waste of money.”

Are Liberals Smarter Than a Fifth Grader?

Self-identified liberals and Democrats do badly on questions of basic economics.

By DANIEL B. KLEIN

Who is better informed about the policy choices facing the country—liberals, conservatives or libertarians? According to a Zogby International survey that I write about in the May issue of Econ Journal Watch, the answer is unequivocal: The left flunks Econ 101.

Zogby researcher Zeljka Buturovic and I considered the 4,835 respondents’ (all American adults) answers to eight survey questions about basic economics. We also asked the respondents about their political leanings: progressive/very liberal; liberal; moderate; conservative; very conservative; and libertarian.

Rather than focusing on whether respondents answered a question correctly, we instead looked at whether they answered incorrectly. A response was counted as incorrect only if it was flatly unenlightened.

Consider one of the economic propositions in the December 2008 poll: “Restrictions on housing development make housing less affordable.” People were asked if they: 1) strongly agree; 2) somewhat agree; 3) somewhat disagree; 4) strongly disagree; 5) are not sure.

Basic economics acknowledges that whatever redeeming features a restriction may have, it increases the cost of production and exchange, making goods and services less affordable. There may be exceptions to the general case, but they would be atypical.

Therefore, we counted as incorrect responses of “somewhat disagree” and “strongly disagree.” This treatment gives leeway for those who think the question is ambiguous or half right and half wrong. They would likely answer “not sure,” which we do not count as incorrect.

In this case, percentage of conservatives answering incorrectly was 22.3%, very conservatives 17.6% and libertarians 15.7%. But the percentage of progressive/very liberals answering incorrectly was 67.6% and liberals 60.1%. The pattern was not an anomaly.

The other questions were: 1) Mandatory licensing of professional services increases the prices of those services (unenlightened answer: disagree). 2) Overall, the standard of living is higher today than it was 30 years ago (unenlightened answer: disagree). 3) Rent control leads to housing shortages (unenlightened answer: disagree). 4) A company with the largest market share is a monopoly (unenlightened answer: agree). 5) Third World workers working for American companies overseas are being exploited (unenlightened answer: agree). 6) Free trade leads to unemployment (unenlightened answer: agree). 7) Minimum wage laws raise unemployment (unenlightened answer: disagree).

How did the six ideological groups do overall? Here they are, best to worst, with an average number of incorrect responses from 0 to 8: Very conservative, 1.30; Libertarian, 1.38; Conservative, 1.67; Moderate, 3.67; Liberal, 4.69; Progressive/very liberal, 5.26.

Americans in the first three categories do reasonably well. But the left has trouble squaring economic thinking with their political psychology, morals and aesthetics.

To be sure, none of the eight questions specifically challenge the political sensibilities of conservatives and libertarians. Still, not all of the eight questions are tied directly to left-wing concerns about inequality and redistribution. In particular, the questions about mandatory licensing, the standard of living, the definition of monopoly, and free trade do not specifically challenge leftist sensibilities.

Yet on every question the left did much worse. On the monopoly question, the portion of progressive/very liberals answering incorrectly (31%) was more than twice that of conservatives (13%) and more than four times that of libertarians (7%). On the question about living standards, the portion of progressive/very liberals answering incorrectly (61%) was more than four times that of conservatives (13%) and almost three times that of libertarians (21%).

The survey also asked about party affiliation. Those responding Democratic averaged 4.59 incorrect answers. Republicans averaged 1.61 incorrect, and Libertarians 1.26 incorrect.

Adam Smith described political economy as “a branch of the science of a statesman or legislator.” Governmental power joined with wrongheadedness is something terrible, but all too common. Realizing that many of our leaders and their constituents are economically unenlightened sheds light on the troubles that surround us.

Mr. Klein is a professor of economics at George Mason University. This op-ed is based on an article published in the May 2010 issue of the journal he edits, Econ Journal Watch, a project sponsored by the American Institute for Economic Research.

Tax Hikes and the 2011 Economic Collapse

Today’s corporate profits reflect an income shift into 2010. These profits will tumble next year, preceded most likely by the stock market.

By ARTHUR LAFFER

People can change the volume, the location and the composition of their income, and they can do so in response to changes in government policies.

It shouldn’t surprise anyone that the nine states without an income tax are growing far faster and attracting more people than are the nine states with the highest income tax rates. People and businesses change the location of income based on incentives.

Likewise, who is gobsmacked when they are told that the two wealthiest Americans—Bill Gates and Warren Buffett—hold the bulk of their wealth in the nontaxed form of unrealized capital gains? The composition of wealth also responds to incentives. And it’s also simple enough for most people to understand that if the government taxes people who work and pays people not to work, fewer people will work. Incentives matter.

People can also change the timing of when they earn and receive their income in response to government policies. According to a 2004 U.S. Treasury report, “high income taxpayers accelerated the receipt of wages and year-end bonuses from 1993 to 1992—over $15 billion—in order to avoid the effects of the anticipated increase in the top rate from 31% to 39.6%. At the end of 1993, taxpayers shifted wages and bonuses yet again to avoid the increase in Medicare taxes that went into effect beginning 1994.”

Just remember what happened to auto sales when the cash for clunkers program ended. Or how about new housing sales when the $8,000 tax credit ended? It isn’t rocket surgery, as the Ivy League professor said.

On or about Jan. 1, 2011, federal, state and local tax rates are scheduled to rise quite sharply. President George W. Bush’s tax cuts expire on that date, meaning that the highest federal personal income tax rate will go 39.6% from 35%, the highest federal dividend tax rate pops up to 39.6% from 15%, the capital gains tax rate to 20% from 15%, and the estate tax rate to 55% from zero. Lots and lots of other changes will also occur as a result of the sunset provision in the Bush tax cuts.

Tax rates have been and will be raised on income earned from off-shore investments. Payroll taxes are already scheduled to rise in 2013 and the Alternative Minimum Tax (AMT) will be digging deeper and deeper into middle-income taxpayers. And there’s always the celebrated tax increase on Cadillac health care plans. State and local tax rates are also going up in 2011 as they did in 2010. Tax rate increases next year are everywhere.

Now, if people know tax rates will be higher next year than they are this year, what will those people do this year? They will shift production and income out of next year into this year to the extent possible. As a result, income this year has already been inflated above where it otherwise should be and next year, 2011, income will be lower than it otherwise should be.

Also, the prospect of rising prices, higher interest rates and more regulations next year will further entice demand and supply to be shifted from 2011 into 2010. In my view, this shift of income and demand is a major reason that the economy in 2010 has appeared as strong as it has. When we pass the tax boundary of Jan. 1, 2011, my best guess is that the train goes off the tracks and we get our worst nightmare of a severe “double dip” recession.

In 1981, Ronald Reagan—with bipartisan support—began the first phase in a series of tax cuts passed under the Economic Recovery Tax Act (ERTA), whereby the bulk of the tax cuts didn’t take effect until Jan. 1, 1983. Reagan’s delayed tax cuts were the mirror image of President Barack Obama’s delayed tax rate increases. For 1981 and 1982 people deferred so much economic activity that real GDP was basically flat (i.e., no growth), and the unemployment rate rose to well over 10%.

But at the tax boundary of Jan. 1, 1983 the economy took off like a rocket, with average real growth reaching 7.5% in 1983 and 5.5% in 1984. It has always amazed me how tax cuts don’t work until they take effect. Mr. Obama’s experience with deferred tax rate increases will be the reverse. The economy will collapse in 2011.

Consider corporate profits as a share of GDP. Today, corporate profits as a share of GDP are way too high given the state of the U.S. economy. These high profits reflect the shift in income into 2010 from 2011. These profits will tumble in 2011, preceded most likely by the stock market.

In 2010, without any prepayment penalties, people can cash in their Individual Retirement Accounts (IRAs), Keough deferred income accounts and 401(k) deferred income accounts. After paying their taxes, these deferred income accounts can be rolled into Roth IRAs that provide after-tax income to their owners into the future. Given what’s going to happen to tax rates, this conversion seems like a no-brainer.

The result will be a crash in tax receipts once the surge is past. If you thought deficits and unemployment have been bad lately, you ain’t seen nothing yet.

Mr. Laffer is the chairman of Laffer Associates and co-author of “Return to Prosperity: How America Can Regain Its Economic Superpower Status” (Threshold, 2010).

Beating Up on Israel

BY DANIEL HENNINGER

The ease with which the world’s governments condemned Israel over the flotilla incident has been something to behold. The Jerusalem-based correspondent for the Toronto Globe and Mail could not help but notice: “The speed and intensity with which governments around the world condemned the Israeli behavior appear unprecedented.” Why?

For starters, denouncing Israel for something like this is convenient for leaders who have failed repeatedly to do anything about more important and difficult problems such as Iran, North Korea or sovereign debt. Also, lesser nations learn by example: The Obama administration’s unrestrained criticism of the Israeli government in March over …

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