Why U.S. Companies Shouldn't Whine About
To hear some people talk, the United States is
the scourge of the Fortune 500. Despite all the tax
cuts that President Bush and Congress have passed
in the last five years, business groups and their
supporters in Washington complain that the United
States imposes higher tax rates on corporate profits
than almost any other industrialized country.
"Foreign-based competitor companies operate
under tax rules that are often more favorable than
our own," warned R. Glenn Hubbard, a former
economic adviser to President Bush and now dean of
the Columbia Business School, at a House hearing
two weeks ago. "Current law can result in
circumstances that harm the competitiveness of U.S.
Around Washington, the rumblings are growing
for "reform" of corporate taxes to improve the global
competitiveness of American companies.
Henry M. Paulson Jr., the incoming Treasury
secretary, declared at his confirmation hearing that
he wanted to increase "competitiveness" in the tax
Can it be true that the United States, where
bare-knuckled capitalism is a romantic ideal and being
nouveau riche is a badge of honor, is harder on big
corporations than "old Europe" welfare states like
Germany, France and Sweden?
Don't believe it. There are plenty of problems
with the corporate tax code — rococo complexity,
perverse incentives, antique ideas — but overly high
taxes is not one of them.
By most measures, the corporate tax burden is
lower in the United States than it is in the European
Union or in Japan or most other industrialized
The political danger, at least from a fiscal
standpoint, is that arguments for corporate tax
reform will be hijacked to justify another round of
corporate tax cuts. That was what happened with
the corporate tax overhaul of 2004, which became a
grab bag of tax breaks to almost every corner of
business, at a net cost of $60 billion over 10 years.
Those who see the American corporate tax as
oppressive point to a striking fact: the standard
corporate tax rate of 35 percent is now higher than
that of most other industrialized countries. The
average top rate is 25.8 percent in the European
Union, where most nations have cut rates to attract
But official tax rates are not the same as actual
tax burdens. What American companies lose in high
tax rates they more than make up in higher tax
One indicator of the true tax burden is corporate
tax revenue as a share of gross domestic product.
According to the Organization for Economic
Cooperation and Development, a research
organization based in Paris and financed by
governments of industrialized nations, corporate
taxes in 2003 were 2.1 percent of G.D.P. in the
United States, 3.2 percent in the European Union and
4.3 percent in industrialized countries in Asia.
Though comparisons of true tax rates are
treacherous, the evidence suggests that the United
States more than makes up for high statutory rates
with generous tax breaks. Robert S. McIntyre,
director of Citizens for Tax Justice, has calculated
that the average corporation paid taxes of about 18
percent in 2004.
The European Commission, using a more
theoretical approach, calculated that the average
effective tax rate in 15 Western European nations
has hovered between 20 and 22 percent since 1998.
When the 10 new Central European members of the
European Union are included, the average corporate
tax bite was 17.7 percent.
"There is good reason to believe that the
corporate tax burden in the United States could be
less than the rest of the world because the rest of
the world has been broadening their tax bases while
we have been cutting ours," said Martin A. Sullivan,
an analyst at the journal Tax Notes.
To be sure, many experts contend that the
American tax code does impose some competitive
disadvantages. One big complaint is that the United
States is one of the very few countries that taxes
corporate profits worldwide. Almost all other nations
use "territorial" systems, taxing only profits inside
The difference is significant. Thyssen-Krupp, the
German steel conglomerate, owes no German taxes
on profits from its operations in Brazil, China or
Poland. And European value-added tax on domestic
sales does not apply to exports to the United States.
United States Steel, by contrast, potentially owes
American taxes on profits from its subsidiary in
Slovakia and must also charge value-added taxes on
exports sold in Germany.
In practice, the disadvantage is smaller than it
appears. For one thing, American companies receive
tax credits for taxes paid in other countries. More
important, American companies have proved
extremely adept at shifting profits into low-tax
countries like Ireland and then deferring the American
taxes on those profits by keeping them outside the
Under current federal law, companies can
postpone taxes on foreign profits until those profits
return to the United States. By some estimates,
American multinationals had accumulated more than
$400 billion in profits outside the country.
Last year, Congress rewarded that behavior.
First, it widened companies' ability to claim tax
credits against their foreign taxes, at a cost to the
Treasury of almost $40 billion over 10 years. Second,
it gave companies a one-time chance to repatriate
their vast hoard of overseas profits at a tax rate of
only 5.25 percent — a bonanza for many
pharmaceutical and electronics businesses.
"The current U.S. rules, while complex, represent
the best of all worlds for multinational taxpayers,"
declared Stephen E. Shay, a former international tax
counsel to the Treasury Department, at a hearing
last month of a House Ways and Means
Many analysts agree that today's rules are a
mess: they do not raise much revenue from foreign
profits, they encourage companies to invest outside
the United States, they encourage profit-shifting
schemes and they probably put some American
companies at a competitive disadvantage.
The challenge is to change the system without
cutting taxes yet again. Michael J. Graetz, a
professor at Yale Law School and a proponent of
radical tax overhaul, told lawmakers last month that
the top corporate tax rate ought to be cut from 35
percent to as little as 15 percent.
But Mr. Graetz said Congress would have to make
up for the lost revenue. "It is not possible to achieve
this kind of corporate rate reduction without a major
restructuring of our domestic tax system," he said.
President Bush called for exactly such a revenue-
neutral restructuring during his re-election campaign.
But any overhaul would provoke intense battles
between potential winners and losers. With
Republicans terrified about losing control of Congress
in the midterm elections this year, Mr. Bush has
postponed making any proposals until at least next
Source:New York Times, Organization for
Economic Co-operation and Development, 2006
Leadership Lessons from Survivors: 'Climbing on
the Mountain's Schedule, Not Ours'
At Wharton's 10th annual leadership conference
on June 13, the theme of "Leading with Resilience:
Coming Back from Challenge and Adversity" brought
together speakers who had faced hardships in a
number of different areas. Perhaps none of the
speakers, however, had experienced as much
physical danger as David Breashears, filmmaker and
mountaineer, who recounted how he and his team
survived one of the deadliest accidents in the history
of Mt. Everest.
"So where does a mountaineer and filmmaker fit
into this conference?" Breashears asked. "Resilience,
excellence, determination, conviction, resolve" --
words that are often used to describe a successful
team anywhere, whether on Wall Street or on a
cliff. "The mountain has been my workplace," said
Breashears, adding that his high-altitude pursuits
have taught him a few things about planning and
The Best-laid Plans
Climbing the world's highest mountain under
normal circumstances requires months, sometimes
years, of preparation. In May 1996, Breashears and
his team faced a special challenge: making an IMAX
film about their journey. Carrying and maintaining
hundreds of pounds of filming equipment meant that
planning was even more meticulous than usual. "We
went to that mountain with a great plan, an elegant
plan," said Breashears. For one, it was flexible. "A
good plan makes you nimble, not stuck. Ours gave us
options ... wiggle room."
By rehearsing extensive "what if" scenarios long
before they got to the mountain, the team was
ready for the unexpected. So when a freak storm hit
the day they were to approach the summit,
Breashears' team turned back while other teams kept
climbing. With the summit just within reach, the
temptation to go on was enormous, Breashears
recalled, especially since the team had already spent
weeks on the mountain, passing through all four base
camps and acclimatizing their lungs to the thin air.
Yet, as Breashears noted, "We had to climb on the
mountain's schedule, not ours," an acknowledgment
that probably saved his life.
As Breashears' team went back down, they
passed several other teams on their way up. By
nightfall, eight people had perished, including Rob
Hall, a world-renowned climber and friend of
Breashears. Hall was leading a group of individuals
who had paid him a substantial fee to lead them to
the top. Jon Krakauer, a writer and outdoorsman who
was on Hall's team, would eventually write the best-
selling book Into Thin Air, chronicling in heartbreaking
detail what had gone wrong.
Among the tragedies of that day was one event
that many later described as a miracle. The storm
that had hit as Hall's ill-fated team made its ascent
caused many of the climbers to become separated.
One small group was in desperate trouble: They had
lost their way in the blinding snow and had run out of
oxygen. In an attempt to save their own lives, they
made the difficult decision to leave behind one of
their team members, Beck Weathers, a doctor from
Texas. By all accounts, Weathers was already close
to death. He had no pulse and appeared to be frozen
in the ground.
The next morning, however, as Breashears and
his team helped with the rescue efforts for those
teams still on the mountain, word came on the walkie-
talkie that "the dead guy is alive." Weathers had
spent the night in sub-zero temperatures fully
exposed to the elements. The next morning, as the
sun hit the mountain, he awoke from a hypothermic
coma and, despite snow blindness and severe
frostbite on his hands and feet, managed to stumble
into camp. He was eventually flown off the mountain
in a helicopter rescue that had its own share of
danger and drama.
Having reached the summit of Mt. Everest five
times, Breashears knows what he wants in a team.
Surprisingly, he's not necessarily looking for the best
climbers. "I look for talented people who believe in
their craft, not those who are looking for praise," he
said. "The most important quality is selflessness. I
knew that no matter what, no one would leave me
behind," he joked.
Sharing a common goal and vision is critical, and
no one's ego can take precedence. "People who
say 'me first' can be dangerous on Everest." Indeed,
in Breashears' experience, the teams that operate
best have a higher objective than themselves.
Humility makes a great leader. "The kind of leader I
want wakes up and asks, 'What did I do wrong
yesterday, and how can I fix it today?' Your team
doesn't need to like you, but they have to trust and
respect you," he said. "A leader who puts his
interests first is a highly demoralizing force."
Source: The Wharton School of the University of
Is this what it takes to be a WC Finalist?
- Employment Situation
- Employment gains were well below consensus
estimates in June; the economy created only
121,000 jobs on net. However, gains for May were
revised higher by 17,000 to 92,000. The
unemployment rate was unchanged at 4.6%. The
weak gains in June suggest that the Fed may finally
pause in its tightening regime
- Chain Store Sales
- Chain store sales grew 2.6% in June, down
from 4.5% in May (upwardly revised), and 6.7% in
April, according to the ICSC chain store index.
Results were mixed across retailers with several
discounters and those concentrated in the Northeast
among the laggards. High gasoline prices, flooding
and difficult comparisons were blamed for the
- MBA Mortgage Applications Survey
- Mortgage demand increased last week, with
the market index rising 5.9% in the week ending June
30. Purchase applications increased 6.5% and
refinance applications rose 5.0%.
- Oil and Gas Inventories
- Crude oil inventories fell by 2.4 million barrels
for the week ending June 30, according to the
Energy Information Administration, above
expectations of a 1.9 million barrel draw. Gasoline
inventories posted a surprise increase of 0.7 million
barrels, against expectations of a draw of over 1
million barrels. Refinery utilization moderated some to
93.1% for the week. This report should have a
bearish impact on prices.
- Moody's Economy.com Risk of
The Moody’s Economy.com probability of recession
edged up in June, to 17.5% from a downwardly
revised 16.6% in April. The yield curve is flattening
again, which is putting upward pressure on recession
risks, but an improvement in consumer confidence
and equity markets is helping temper recession risks.
In all, not much has changed in the past month. The
chance of the economy being in recession in six
months remains relatively tame, but is rising.
- Global Business Confidence
- Business sentiment appears to be stabilizing
after steadily declining from its near record high in
early May. Confidence is now consistent with growth
that is near the global economy’s potential. The
weakest responses are to the survey’s broadest
questions, including respondents’ overall assessment
of current conditions and their expectations for
growth six months hence. The strongest responses
are to investment in equipment and software. Hiring
also remains sturdy. Businesses are equally as
optimistic in North and South America and Asia, and
measurably less upbeat in Europe. High-tech,
construction, and natural resource firms are the most
positive. Non-auto manufacturers also remain
optimistic. Vehicle manufacturers are very
- Factory Orders M-3
- Factory orders rose 0.7% in May; consensus was
expecting a smaller 0.1% gain. Durable goods orders
were revised up to a 0.2% drop from a 0.3% drop
previously reported. Nondurable goods orders rose
1.6% in May.
- ISM Non-Mfg.Index
- Business activity in the non-manufacturing
sectors of the economy continues to decelerate,
falling 3.1 points to 57%. This deceleration is
stronger than the 59% that both Moody's
Economy.com and the consensus forecast
|This Weeks Leads
- Manchu Wok
- Manchu Wok, Inc. trades as Manchu Wok at 206
locations nationwide, internationally and in Canada.
The Chinese restaurants occupy spaces of 500 sq.ft.
in food courts. Growth opportunities are sought
nationwide during the coming 18 months. Typical
leases run 10 years. For more information, contact
Bob Vrenjak, Manchu Wok, Inc., 85 Citizen Court,
Unit #9, Markham, Ontario, CN L6G 1A8; Website:
- Left Bank
- Left Bank operates six locations throughout CA.
The restaurants occupy spaces of 6,000 sq.ft. to
8,000 sq.ft. in malls and street fronts. Plans call for
two openings throughout CA and NV during the
coming 18 months, with representation by Townsend
& Associates. Typical leases run 10 years. Preferred
demographic include a population of 300,000 within
10 miles. For more information, contact Michael
Townsend, Townsend & Associates, 5757 Wilshire
Boulevard, Suite 300, Los Angeles, CA 90036; 310-
286-9945, Fax 323-904-6302; Email:
- Cinema North
- Cinema North Corp., a 14-unit chain operates
locations throughout CT, MA, NY and VT. The movie
theaters occupy spaces of 20,000 sq.ft. to 25,000
sq.ft. in malls and entertainment, power and strip
centers. Plans call for two openings throughout CT,
MA and NY during the coming 18 months. Typical
leases run 15 to 20 years with options.For details,
contact Gerald Couture, Cinema North Corp., 930 US
Route 4, Rutland, VT 05702; Website:
- Consumer Pulse
- Consumer Pulse, Inc. trades as Consumer Pulse at
13 locations throughout CA, CO, FL, IL, MD, MI, NC,
OR, PA, VA and WI. The facilities, which offer
marketing research services, occupy spaces of 1,500
sq.ft. in malls. Plans call for two to three openings
throughout AL, AZ, CA, CO, FL, GA, MA, NC, OR, SC
and TX during the coming 18 months. For more
information, contact Richard Miller, Consumer Pulse,
Inc., 725 South Adams Road, Suite 265, Birmingham,
MI 48009; Web site: www.consumerpulse.com.
Bonneville Research is a regional management-
consulting firm, which serves clients in business and
government. We measure our success by the
benefits, which accrue, to our clients through a
- Together - Making changes is never easy. We
work together with you and your key stakeholders to
define measurable objectives, set realistic schedules
and build collaborative/motivated teams.
- Objectivity - Scrupulous intellectual honesty
and the courage to "tell it like it is".
- Creativity - Openness to diverse ideas and
- Quality Results - Reflecting the contributions of
the best people working together in teams drawn
from multiple disciplines.
- Technology - Using the latest expert assisted
software, and custom- fit component econometric
models, reflecting the best professional techniques
- Toughest Problems - Working by your side to
solve your thoughest problems and achieve your
- Results - Providing workable results that endure.
Bonneville Research lives by the quality and
relevance of our work for you!
If we can help, call 801-364-5300 or email at