Ballmer: Microsoft Will Move Jobs Offshore If Taxes Rise

http://www.bloomberg.com/apps/news?pid=20601087&sid=ah5YH8sw_VzI

by Flemlord • 17 years ago

31 59 17 years ago

daeken• 17 years ago

Raise your hand if you didn't see this coming. I mean, really, it's not difficult to see that when you raise taxes (by closing loopholes or otherwise), people simply shift resources away from your country to compensate.

ardit33• 17 years ago

yeah, I'd like MS to move in China permanently. let see how many copy of windows they will sell there.

anamax3• 17 years ago

Balmer's point is that MS can make more money by making Windows in China and selling it in the US and other places than he can by making it in Seattle and selling it in the US and other places.

irrelative• 17 years ago

That's fairly vague statement for a group of people that thrive on facts. What kind of jobs? Programming jobs? New jobs?

How much would taxes have to rise? 0.0001%? Or is there some room for negotiations? What if the US raised taxes more on companies that offshored jobs?

This seems like basic politicing at its best. Big companies are going to start playing taxes chicken with big government. By making blanket, vague statements like these, they hope to shape the conversation amongst politicians. There's a real conflict of interest when these guys start telling the government what's good for business.

DenisM3• 17 years ago

I think it's quite reasonable for businessmen to tell politicain about consequnece of their plans.

The alternaitve is to stay silent and let ineffective ideas strangle business (and impoverish society) and/or act on it, moving their business elsewhere.

dtap• 17 years ago

Basic Economic theory tells us that increasing taxes will hinder business development. The question is just would you rather give up the business (and its quantifiable value) for the increase in tax revenue.

The Ireland issue is really interesting to me. Many companies (Accenture, Warner Chilcott) are moving their incorporation from Bermuda to Ireland. The U.S. can bully around the little island states, but Ireland is much more of a bargaining force.

In my view, this is in the same vain as Delaware Corporations, just to the extreme.

jhancock• 17 years ago

Removing tax havens (your island state bullying) is long overdue.

There is a lot to consider in how to tax a multinational doing legitimate business in a foreign country. Don't confuse that with what companies use Bermuda and the Caymans for.

graemep2• 17 years ago

Economic theory says no such thing. It is true that investment might reduce if taxes are raised if ceteris paribus, but as tax rises either increase revenue or reduce national debt, they are never ceteris paribus.

Imagine we had very low taxes, but the state did not build roads (so transport costs went up), provided only minimal policing (so companies would have to spend more on their own security people) etc., it is far from obvious that it would be good for business in general.

Ireland is increasingly annoying not just the US, but other EU countries, and many others. It is also subject to EU law, and its economy us currently very weak, making more dependent on the rest of the EU.

Incidentally, Warner Chillcot was originally a Northern Irish business (Galen) that changed its name to that of an American company it bought.

eds• 17 years ago

Here in California, we have very high taxes, and the state does not build roads, and provides only minimal policing.

fauigerzigerk• 17 years ago

That's an interesting point you're making and it's no doubt true in general. And there are other reasons as well why companies stay in high cost locations (like central London or NYC).

But what's all the more important is how much of the taxes a company pays actually buys something they would otherwise have to buy themselves. The same goes for personal income tax.

The problem with paying for things via taxes is that everybody is paying the same regardless of how much of it they actually consume. For instance, software companies benefit a lot from free public education but very little from good roads and bridges. For a postal service it's the other way around. Of course there are always indirect benefits that mitigate this effect.

Some things are just much more efficient when paid for by everyone collectively. But at the same time individual choices become less important. Individuals and companies benefit less from good choices and suffer less from bad ones. There's less incentive for a postal service to avoid unnecessary trips if roads are free and fuel is subsidised. There's less incentive for individuals to get a useful degree rather than studying ancient persian cults.

So it's a balance. But I'm concerned that here in europe there is a tendency of making so many choices for everyone collectively that being different becomes very expensive. I don't want to save for my pension because I don't want to retire. Ever. Making that decision for myself is near impossible in europe. I hate that.

DanielBMarkham• 17 years ago

Imagine we had very low taxes, but the state did not build roads

No need to imagine. Businesses existed a long time before the state ever got around to building roads. Businesses seem to exist just fine without much government intervention at all -- so well, in fact, that one of government's roles is to prevent monopolies.

This whole "government provides infrastructure so businesses should be happy to have it" presumes that the infrastructure the government is providing is the best and most efficient use of the dollars in question for that particular business. That's a really big assumption.

mdasen• 17 years ago

From what I know:

So, you have Microsoft, based in the US with operations in other countries as well. Microsoft's Ireland branch sees profits of $1B and pays the Irish government the tax on the profits it generated. Microsoft's US branch sees profits of $5B and pays the US the tax on that $5B. Now, if Microsoft wants to bring that $1B from Ireland back into the US, it must also pay the US government tax on that $1B (it's already paid the Irish government there). But, if they don't bring that money back and rather reinvest it overseas, they don't have to pay tax on that $1B profit made by the Ireland branch. President Obama wants to make them pay tax on that $1B no matter what - so that they have to pay taxes to both the Irish and US governments.

No other country has a system like this. So, if you're a British company and you have an American arm, and you make $5B in British profits and $1B in American profits, you can bring that $1B back to Britain (after paying the US government tax on that $1B) without having to pay the British government tax on it. This is how the world works - as a company, you have to pay tax on the profit you create within a country. Except in the US where you have to pay taxes on the profits you make in the country and any profits you bring back from abroad, but you're allowed to defer the taxes as long as you don't bring the money back.

One of the bad side-effects of this is that it means that American companies would rather reinvest their money overseas than bring it back since they would be doubly taxed if they brought it back. And it's important to note that "socialist" countries in Europe don't see this as "tax dodging" and don't tax companies on foreign profits (probably in the hopes that they bring the money back and reinvest within the country).

So, for companies with overseas operations, this is essentially a 35% increase in taxes on foreign profits (which are already taxed in the foreign jurisdiction at whatever that country's rate is).

I really don't think this is an issue of being pro or anti socialism. I favor better government services, but you can't just doubly tax companies on profits which have already been taxed by another country on profits not created in your country. It would make it impossible to run a multi-national firm from the US.

Does that sound right?

EDIT: There is one caveat here. Right now, companies sometimes fudge where they created the profits. As the article points out, Microsoft develops Windows in the US and then has its Ireland branch sell it in Europe. The Ireland branch shouldn't be getting those Windows copies for free and the Ireland branch (from an accounting perspective) should be paying the American branch a royalty. Microsoft's pre-tax profits would be the same in that case, but where some were realized would be different with more realized in America. And the IRS actually does prosecute cases (they recently settled with another software firm that they accused of this). That's really the problem here is that American firms are attempting to claim that some of their profits are from foreign arms that were actually created in America (since America has one of the highest corporate tax rates in the world - higher than socialist Europe). Anyway, it's late and I should be asleep.

EDIT 2: Personal and Corporate Income Taxes of different countries - http://en.wikipedia.org/wiki/File:Income_Taxes_By_Country.sv.... As you see, Ireland has very low corporate taxes and the US is second only to Japan. So Microsoft would rather its Irish branch see much higher profits than its American branch. Personal taxes might not be high in the US, but corporate taxes are.

EDIT 3: Basically, I think it's unreasonable to expect a company to pay taxes both to the country that they're operating in and to the country they're headquartered in on the same profits. Taxes are good, but having to pay twice just means that you can't have companies that cross borders. That said, we should crack down on companies that are mis-categorizing where they profits are being created.

FINAL EDIT: But much of that complexity is caused by the divergence between America’s system of taxing its firms (and citizens) on their worldwide income and the territorial system used by most other countries. http://www.economist.com/world/unitedstates/displaystory.cfm... An Economist article on the issue.

graemep2• 17 years ago

Companies should pay tax in their home country on the profits of overseas subsidiaries, but they should be allowed to offset the taxes paid in the countries the subsidiaries are located in. So if your home country tax rate is 30% and you have a fully owned subsidiary in a country that has a 10% tax rate, for every $100 in profits the subsidiary makes you pay $10 where it is located, and $20 at home.

Remember the overseas subsidiary's profits are shown in the consolidated accounts, which shows that they do belong (in part if there are minority shareholders) belong to the parent company.

TriinT4• 17 years ago

"Companies should pay tax in their home country on the profits of overseas subsidiaries."

That creates an incentive for companies to move their headquarters to the most low-tax, business-friendly country. Moreover, companies already benefit society by employing the majority of people. I don't see any moral reason why they should pay taxes at all, and I don't see what companies owe to the countries they're located in.

What you may regard as tax cheat, I regard as acting on one's self interest.

grandalf• 17 years ago

Of course all taxes go to help the poor and needy and to make the world a better place, and not toward things like wars, corporate welfare, pork, etc.

dbul• 17 years ago

Taken from the TG-119 which Bloomberg referenced:

In other words, companies would only be able to take a deduction on their U.S. taxes for foreign expenses when they also pay taxes on their foreign profits in the United States.

This makes sense. The proposal isn't forcing a company to pay extra taxes. It simply places tax incentives on layaway until the company pays its foreign taxes.

The question is: do foreign taxes count as expenses? They ought to.

http://www.treas.gov/press/releases/tg119.htm

DenisM3• 17 years ago

Expences are deductibe form income, whereas typcial foreign tax credit is substracted from the domsectic tax itself. I bet it's the latest, as is the case for the personal income tax.

olefoo2• 17 years ago

It's hard to read this as anything but "Touch my money and the workers get it in the neck."

Ballmer never was the subtle one. Getting into a public pissing match with a president who has shown a certain willingness to take decisive action in matters relating to ensuring that the money keeps moving, may not be the wisest move.

TriinT4• 17 years ago

What will Obama do? Kill Microsoft in response? Ballmer has to serve the Microsoft shareholders, not the American people. Obama has to serve the American people, not the shareholders.

Let us face it, the president and other members of government are, in many ways, a bunch of puppets. They shape the policies and create the incentives, but they can't force business to do what they want. Unless we turn into a totalitarian state.

olefoo2• 17 years ago

How much money does the federal government drive to Microsoft?

If they really got into it Obama could make a very public push for "Greater Opennness and transparency in government through the use of Open Source Software", it wouldn't have to be aimed at Microsoft, but it would kind of suck to be concerned about Microsoft's share price that week.

And if Microsoft whined about it he could just point to the fact that they've decided not to be an American company anymore.

Not that it's going to get that far, Ballmer is just bluffing.

ars• 17 years ago

Way to miss the point. Ballmer's point is that Obama's tax plan is a bad idea.

anigbrowl7• 17 years ago

I have mixed feelings, in that I'm Irish and I'm not so in favor of high corporation taxes, but rather higher capital gains taxes on profits realized through share ownership (trying to balance fiscal &social responsibility with enabling business).

but taxes are ultimately a philosophical issue to which there is no correct answer. Although This will likely not make a big difference to anything in the long run, it shows Ballmer to have a political tin ear. This is not a good time for a rich CEO of a rich company which accounts for a lot of H1-Bs to be complaining about the pain of paying taxes. Average joe and Jane have little interest in the niceties of economics or technology, and will read this as 'Evil megacorp blackmails government and hires only cheap foreigners, also Vista sux'.

MS is the 800lb gorilla of the software world, but the US government is the 800lb gorilla of the, er, world. Playing standard Ballmer hardball at a time of skyrocketing unemployment is a bit like the car bosses a few months ago taking private jets to ask DC for more money to build cars nobody wants to or can afford buy. Good reason or not, it's wildly insensitive to the political mood.

dantheman4• 17 years ago

There is a correct answer - taxes are involuntary confiscated from people hence they are evil; Unfortunately, they're the best solution to funding the government so we have to make do, but never forget pointing a gun at someone to make them do what you want is never a gray area.

iamelgringo5• 17 years ago

taxes are involuntary confiscated from people hence they are evil

I disagree. In a Democracy, taxes are part of the social contract that we as citizens have with the government and fellow citizens of the country where we hold our citizenship. We submit to a level of taxation that is agreed upon by our representatives in government. We have also agreed upon as a nation that people should be uniformly subjected to some taxation. We generally agree that receiving all the government's goods and services and not paying taxes is illegal. It's only extreme forms of this type of behavior that is generally punishable by imprisonment.

We receive goods and services that the publicly elected government decides to provide. You drive on roads that are paid for by taxes. You receive protection from crime, recovery in times of disaster, and you interact with corporations whose dealings are regulated by our taxes.

You use pieces of paper that has pictures of former statesmen printed on them to trade for other goods and services. Commerce would not be possible without that government backed paper. We would be reduced to barter without it. The value of that paper is guaranteed by the government and the taxes that we pay.

If you are unhappy with the level of services that your taxation is providing, you are free to live in a different country, where as an expatriate, the first $80,000 of your income is not subject to income tax, because you receive less services from your government.

You're also entitled to vote for representatives that align more carefully with your values. That right to vote is supported by the taxes you pay.

Call that system evil if you will. I think it actually works pretty well.

anigbrowl7• 17 years ago

You could always move to Somalia. One does have a vote in most societies (though being Irish in America, I don't), and basic services are there for the asking. If you don't like the cost/benefit ratio in the society you're in, you can try to change it, or leave; unless you're unfortunate enough to live somewhere like North Korea.

Dilpil2• 17 years ago

Keep in mind, it worked out for the car bosses.

GrandMasterBirt2• 17 years ago

Well, there goes Microsoft's reputation.

However Balmer does have a point. If its not worth it for the company to do business in the US, then why should it? This stupid idea of "nationalism" only works for the stupid masses. To a business its where the money is.

The government right now is not making good policies to make shit not fuck up, they are just throwing money at the problem. Someone has to pay that money. Microsoft does not want to be that someone.

jwr• 17 years ago

Poor Steve.

patrickg-zill• 17 years ago

My suggestion: the US should create a class of corporate trusts similar to the "canroys" that Canada has.

Under this setup, as long as a certain high percentage of the profits are distributed to the shareholders each year, the corporate taxes are non-existent or very low.

In this case, Microsoft would not pay much US taxes, but the individual investors would be the ones paying tax on the dividends received. End of problem.

Ballmer: Microsoft Will Move Jobs Offshore If Taxes Rise

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