IBM 'pulls out of US'
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  1. #1
    AO's Filibustier Cheap Scotch Ron's Avatar
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    IBM 'pulls out of US'

    TJ must be rolling over in his grave.

    http://www.itexaminer.com/ibm-pulls-out-of-us.aspx
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    no big surprise.


    Lower the Corporate Tax Rate = answer

    The U.S. has one of the highest corporate tax rates in the industrialized nations. We are around 35% or so.
    Ireland who has the lowest in the world, has around 12% or so. No wonder their Capital is always "Dublin!"

    I don't have the links or proof on me right now, but surveys of companies who have outsourced jobs have been taken. They overwhelmingly stated that they would bring the jobs back here to the States.

    Another factor as to why they either outsource or move out completely is because of the high rising health insurance rates for employees. I'm not going to try & get political here, but I do wish Obama luck with his plan to make healthcare more affordable. One of the underlying problems with this, is that people here illegally rarely pay hospital bills as they are hard to trace & keep up with.

    -jay

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    Super Moderator: GMT Zone nihil's Avatar
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    The U.S. has one of the highest corporate tax rates in the industrialized nations. We are around 35% or so.
    You are wrong in several respects there............our corporate taxes are around 40~50%.

    The answer is that an Indian will work for $800 a month whereas his US counterpart will want $800 a week.

    Over the years I have filed corporate tax returns for the US, Canada, Australia, South Africa and most Western European countries and I can assure you that direct labour costs are totally deductible in calculating taxable revenue

    The issue is expected compensation levels, no more, no less.
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    Quote Originally Posted by nihil View Post
    You are wrong in several respects there............our corporate taxes are around 40~50%.
    I was quoting the most conservative # from John McCain, the guy who ran against Obama. I have heard as high as 40% but have not heard any higher. You may be right, nevertheless it's too high.

    Quote Originally Posted by nihil View Post
    The answer is that an Indian will work for $800 a month whereas his US counterpart will want $800 a week.
    total agreement not to forget he/she will also work without even considering health insurance whereas in the Western world it seems to some to be a "constitutional" right. I will say this, lower the corporate tax rate, it will most definitely decrease the chances of companies considering outsourcing. The studies show that to be a fact.

    Quote Originally Posted by nihil View Post
    Over the years I have filed corporate tax returns for the US, Canada, Australia, South Africa and most Western European countries and I can assure you that direct labour costs are totally deductible in calculating taxable revenue

    The issue is expected compensation levels, no more, no less.
    agreed

  6. #6
    Super Moderator: GMT Zone nihil's Avatar
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    Interesting!

    Over here your profit and loss account would be something like this (shown without the detail here )

    Operating Revenue £xxxxxx

    Direct Costs (£xx)

    Gross Operating Profit £xxxx

    Expenses (overheads) (£x)

    Net Profit Before Taxation £xxx

    Taxation (£x)

    Net Profit After Taxation £xx

    Dividends (£x)

    Transfer To Reserves £x

    Now, The "taxation" element would be our "Corporation Tax" and our other corporate taxes would be included in Direct Costs and Expenses, as they are employee and property (real estate) related.

    The way accounts are perceived over here is strictly vertical. If you source offshore you will reduce Direct Costs and Expenses. This will inflate your reported Operating Profit, Net Profit, Earnings Per Share, PE Ratio and all those good things that market analysts like.

    Reducing Corporate Taxation will not affect those in the slightest..........it's just the government getting their feet in the trough along with the shareholders.

    The main reason to reduce CT would be to increase the transfer to reserves which improves cash flow and supposedly encourages companies to reinvest with their own funds.

    In times of recession that is highly unlikely to happen. The funds would simply be used to maintain shareholders' dividend payments and bolster the balance sheet.

    EDIT:

    It is interesting to note that although this story is 10 days old the only place it seems to have got any credence and coverage is in the Indian press?
    Last edited by nihil; February 27th, 2009 at 04:13 AM.
    If you cannot do someone any good: don't do them any harm....
    As long as you did this to one of these, the least of my little ones............you did it unto Me.
    What profiteth a man if he gains the entire World at the expense of his immortal soul?

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    AO's Filibustier Cheap Scotch Ron's Avatar
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    The issue is expected compensation levels, no more, no less
    Compensation is just one piece. The issue is total operating costs of which, especially in a service oriented business, the largest expense is employee costs and taxes. As the govt enacts laws to force companies to provide all sorts of benefits (e.g. paid leave, mandatory healthcare), employers will simply move the work to other less expensive countries.

    Currently, the average combined federal and state corporate tax rate in the U.S. is 39.3 percent, second among OECD countries to Japan's combined rate of 39.5 percent.1 Lowering the federal rate to 30.5 percent would only lower the U.S.'s ranking to fifth highest among industrialized countries.

    When compared to other OECD countries:

    24 U.S. states have a combined corporate tax rate higher than top-ranked Japan.
    32 states have a combined corporate tax rate higher than third-ranked Germany.
    46 states have a combined corporate tax rate higher than fourth-ranked Canada.
    All 50 states have a combined corporate tax rate higher than fifth-ranked France.
    http://www.taxfoundation.org/publica...how/22917.html
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  8. #8
    Super Moderator: GMT Zone nihil's Avatar
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    Hmmm,

    That link states British tax as 30%. What it doesn't take into account are our employment tax and local business rates. Neither of the latter two are profit related.

    One point you haven't mentioned, that is certainly an issue over here, is the cost of providing workspace in major cities. Coupled with this is the fact that such workers require far higher compensation to cover their cost of living; both accommodation and transportation.

    To me the whole thing is rather short term and short sighted. I am old enough to remember when "made in Japan" meant cheap and nasty. Now their manufacturing has gone the same way as our own.

    I went to a camera shop a while back and looked at cameras and binoculars:

    Nikon
    Canon
    Yashica
    Pentax
    Minolta

    All of them were made in China
    If you cannot do someone any good: don't do them any harm....
    As long as you did this to one of these, the least of my little ones............you did it unto Me.
    What profiteth a man if he gains the entire World at the expense of his immortal soul?

  9. #9
    AO's Filibustier Cheap Scotch Ron's Avatar
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    To me the whole thing is rather short term and short sighted.
    Could be.

    But it sends a loud message to Congress. Too bad they are all deaf and dumb.
    In God We Trust....Everything else we backup.

  10. #10
    Super Moderator: GMT Zone nihil's Avatar
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    The only message I can see Congress getting is that IBM don't give a damn about their US employees.

    The issue is total operating costs of which, especially in a service oriented business, the largest expense is employee costs and taxes.
    Sorry, corporate taxation is not an operating cost, it is a sequestration of profit. Over here, our employment tax and property taxes are operating costs as they depend on the scale of your operations, number of employees and their compensation.

    Basically IBM is typical of a large monolithic organisation. They tend to over expand in times of plenty and contract accordingly in downturns. Heading into a major recession would tend to make them overstaffed, so they have been moving non-critical work to their (cheaper) overseas subsidiaries, and laying off North American staff. Thus far their results have exceeded market expectations, so this would seem to be a precautionary strategy.

    Reminds me of the old joke:

    Two lions escape from the zoo. They decide to split up and meet back in two months to see how the other is doing.
    Two months later, one lion is scrawny and beat up, the other is fat and happy. The scrawny beat up lion says, "I went to the park and started eating children. The police and national guard came after me and I haven't stopped running since. How are you so well fed?"
    The second lion replies, "Easy! I Just hid outside the IBM office and ate a manager every day. Nobody even noticed!"


    I don't actually believe that these overseas jobs are really available to North American employees, it is just a political smokescreen. It does make sense to retain some functionality at a much lower cost to make it easier to come out of a recession.


    Remember, IBM are no strangers to staff cuts............they must have dumped 150,000 in the 1990's?
    If you cannot do someone any good: don't do them any harm....
    As long as you did this to one of these, the least of my little ones............you did it unto Me.
    What profiteth a man if he gains the entire World at the expense of his immortal soul?

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