Ballmer: Microsoft Will Move Jobs Offshore If Taxes Rise
bloomberg.com
bloomberg.com
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.
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.
He keeps the neighborhood orderly, so you don't have to deal with thugs.
He keeps everyone respectful. Business isn't possible without respect.
If you are unhappy with the don's policies, you can sell your house, leave your job and family behind, and flee.
First, the American presidential election averages the opinions of 200M people to obtain 1 bit of information. Selecting a president from the population requires about 28 bits. Where do the other 27 come from?
Second, in a presidential election each voter exercises a miniscule amount of power/influence over their own life - about one-200millionth - and a lot of similar tiny increments of influence over everybody else, all adding up to 1. But why should each voter have 200M times more business meddling in the lives of everyone else than governing themselves? The setup is ripe with perverse incentives.
Both effects get starker as a democracy grows in size.
But, just because you don't choose to participate more in the political process and have more influence doesn't mean that you are unable to participate. That is a very big distinction that a lot of people have shed blood over in the past three hundred years.
But, as paltry as the vote may seem, you get the benefits of a reasonably transparent, efficient and honest government system. And, the last 9 months aside, you are able to participate in one of the largest, most vibrant economies in the world at one of the (comparatively) lowest levels of taxation in the industrialized world.
We are forced by law to accept these pieces "green and gray ink" to settle all debts regardless of what the debt is really in -- you cannot make contracts in gold, and expect them to be enforced. Commerce is most definitely possible without that paper, in fact in California in the early 1900s you were blackballed if you used Dollars instead of gold.
"In California, as in other states, the paper was legal tender and was receivable for public dues; nor was there any distrust or hostility toward the federal government. But there was a strong feeling ... in favor of gold and against paper ... Every debtor had the legal right to pay off his debts in depreciated paper. But if he did so, he was a marked man (the creditor was likely to post him publicly in the newspapers) and he was virtually boycotted. Throughout this period paper was not used in California. The people of the state conducted their transactions in gold, while all the rest of the United States used convertible paper." [ref1]
I am unhappy with the level of services and taxes, but instead of leaving I hope to change and improve it. Just because someone disagrees doesn't mean they are forced to leave.
ref1: Frank W. Taussig, Principles of Economics, 2nd Ed. (New York: The MacMillan Company, 1916) I, 312. Also see J.K. Upton, Money in Politics, 2nd Ed. (Boston: Lothrop Publishing Company, 1895) pp. 69 ff.
I'm sure if you have libertarian, minimalist government leanings, then Nozick's work dispelled the social contract theory of democracy quite nicely. I don't find citing an unknown authority to "disprove" my arguments very helpful. It's a corollary argument to "proof by grad student".
I'm certainly not interested in arguing the benefits of alternate currencies, gold standards or fiat money here. I'm simply pointing out that we all recieve a lot of benifits from the taxes you pay, despite your unhappiness with the system.
And, I wasn't suggesting that you leave the country, I was pointing out that if you are unhappy with the system, you have options. Another option, is that you are free to participate in our tax supported democracy to change it by voting of participating politically.
Either way, you're not going to be forced to do either of those options at gunpoint. You do have that freedom. I grew up in Central America in the 80's. The term "being forced to do something at gunpoint" has different connotations for me than it must for you.
We'll have to agree to disagree.
Try not paying your taxes and see how different it actually is. (Granted, our jails may be slightly better and the police are less likely to simply shoot you if you obey their orders.)
Yes, getting to vote is different from not getting to vote. We're talking about what happens to folks who disagree with the result, regardless of how it came about.
Or, being held at gunpoint to be sure that your paper work is in order (has happened to me).
Being held at gunpoint to be robbed by "freedom fighters" that the US gave weapons to while transporting a van load of elementary school supplies . (Happened to my brother)
Being help at gunpoint in the middle of a church service in rural/lawless countryside by an intoxicated gentleman who was upset by the religious tracts that were handed out by people in our group. (Happened to my father and I)
And, I can guarantee you that our jails are much, much better than what you would find in most countries of Central America and our police are much, much more honest.
My chances of getting arrested by police officers here might be pretty good if I willfully refused to pay taxes for years. But, that would be my choice, and I certainly know the risks that would entail. And, worst case scenario, I might spend some time in a minimum security prison.
It seems that your opinion of our government is rather low, and that's understandable, but these are dramatically different scenarios.
Yes, different places have different "social contracts", which results in police using force in different situations. Those differences don't mean that "social contracts" are voluntary in some places and not in others - they're all imposed by force.
Yes, the circumstances in which police will point guns at you vary.
That doesn't address
With the clever exception that, unlike a grad student, Nozick's Anarchy, State, and Utopia is freely available from Amazon.com if you want to read the argument for yourself.
Some points just are too long to fit in a comment post. For example, sometimes people link to Paul Graham essays when pg makes a point they can't restate any better. The parent post is similarly "linking" to a published book.
Taxes are necessary, unless you want to pay out-of-pocket for schools, the fire department, police, etc. And literally anyone who can't afford hospital treatment gets thrown out of the hospital no questions asked. No insurance? No problem, have a near-death experience which causes you to be in a hospital for 5 days? $80,000, pay up. Want people to go to jail for killing other people? Well I guess you better have enough money to sponsor a court session otherwise the criminal walks free.
Argue against taxes all you want, but I want to see a large society work without taxes.
* How do we voluntarily fund a government?
* How do we have an anarchic civilization?
* Are we willing to trade civilization for anarchy?
In other words, the type of person who argues that taxation is theft either has to shrug and say it's a necessary evil, have really clever answers to your objections, or be an anarchist. The anarchist will shrug his shoulders and say "we shouldn't have a US government" and the "necessary evil" folks like me will shrug their shoulders and say "you're both right".
Two flaws with this argument of Nozick's:
1. by accepting or requesting external enforcement of your contracts, you're opting into the general social contract;
2. well of course people wanted to use gold to settle. the claimholders had got there first and there was a lot of gold to be had. If California was a separate country, it would have just resulted in a social contract where only gold was acceptable, because that suited gold-holders.
You know, if you happen to sit atop a diamond mine, then you probably think everyone should be willing to accept diamonds as payment. If I sit atop a diamond mine and you don't, you probably feel otherwise.
2. That is the incorrect conclusion to draw, they didn't want to accept dollars because the new that the government would inflate their value away as every government that has ever existed has done without fail.
The word "contract" conveys an idea of some sort of fixed agreement, that can be recinded if one party doesn't fulfull it's obligations.
Problem is, you're pretty much obligated to enter into the contract in order to get education and work, and if you don't fullfill your part, the government recinds it by putting you in jail.
The other way around? What are even the governments obligations? If you're not satified with the police not doing enough to fight crime in your neighborhood, or fighting the "wrong" (in your opinion) kinds of crime?
Not happy with wars, schools or bailouts? You get to move. That's pretty much it. Yeah, you also get to participate in the democratic process, but that's not the kind of influence you normally connect with contracts.
But if it gets bad enough the rich will move the Caribbean. As I understand it, that is what a lot of very wealthy French people have done.
It's just the characterization of the deal as a contract I'm opposing. Any civil contract just vaguely like the citizen/government "contract" would result in criminal investigation pretty much anywhere in the world.
Oh. I have to move to another country and accept their social contract, instead. I have to go out of my way and leave the land I was born in and the continent that my ancestors lived in for centuries before these governments were even established, and refusing to do so means I have "accepted" a social contract whose terms can change outside my control and against my most spirited resistance.
I can accept an argument that voluntary human interaction does not scale well enough. I can accept an argument that we need institutional violence to keep a continent-wide civilization in order. I can accept an argument that the benefits of civilization outweigh the costs of this institutional violence. But don't pretend this state of affairs is voluntary. We are born into a system, raised knowing no other way for humans to live, made to recite pledges of allegiance in the classroom before we know the language well enough to understand what we are saying, and as adults, expected to obey arbitrary rules with no realistic recourse of change. And we are expected to believe that we freely chose the shape of the society we live in.
Yes, you can vote. You can even assert your constitutional rights and try to convince five judges, rather than fifty million voters. But even then, the voters might vote to amend the constitution to take your rights away. So in reality you're always at the mercy of authority--be it the authority of the courts or the authority of the mob.
When, exactly, in the Indian Wars did the tribes accept their social contract? Does the fact that your ancestors lost a war really constitute consent to the rule of the victorious government just because that government has conquered and subdivided your homeland?
I'm well aware that blood has been shed to secure what little choice we have under this government. Blood has also been shed to force an entire race, under gunpoint, to live under this government against their will. And blood was also shed to take two steps forward and one step back--no more slavery, but on the other hand, if your entire state votes to opt out of the federal government, it gets burnt to the ground by General Sherman.
There is no social contract. No one freely chose to live under government, though many of us do accept the status quo, and many more simply resign themselves to the belief that there is no alternative. We do have a society that seems to work acceptably, and that may outweigh the cost. Government seems necessary for civilization, and civilization is a wonderful thing. But voluntary? No, sir, it is not.
(Edited)
If you were part of one tribe and defeated by another here in the US >500 years ago, you could go elsewhere and either establish yourself there or regroup and take back your ancestral land in another conflict. But against European colonists with superior technology, it ended up as a string of lost conflicts. The colonists in turn were opting out of their default social contract, and established another where there was weak opposition.
Technology doesn't make people nicer or fairer, but is used for competitive advantage when fighting over resources. If the South had had better technology (including the socioeconomic kind) they might have secured their desired border and prevailed.
If/when it becomes practical to colonize other planets, we'll do the same things as before on a grander scale.
Perhaps collectively, in the same way that smog is the expression of motorists at large. But that doesn't mean anyone has consented to it, especially when that government is on balance injurious to some group of people living inside of it.
I don't really know level of minimal government you have in mind; I'm guessing defense and courts and police, but I can't help feeling that much of what government does in the name of regulation is to agglomerate court precedents. As any society with writing progresses, refinements to their civil code are going to accumulate.
I think liberatarians would do better to provide examples of economically diverse societies and show how a minimalist approach provides better results over the long run.
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.
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.
The alternaitve is to stay silent and let ineffective ideas strangle business (and impoverish society) and/or act on it, moving their business elsewhere.
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.
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.
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.
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.
The rich could pay a higher sales tax instead of a higher income tax. You want a Ferrari? 50% tax on it! You want an airplane? Pay tax again.
In the system we have there are so many loopholes that the rich will always afford good lawyers and accountant and get away with it anyways, so we could stop spending money on stupid IRS workers, reduce the size of government, and streamline the taxation process.
Just my 0.02 USD...
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.
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.
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.
Good point. The government does have a lot of leverage on that. But, seriously, why doesn't the government go open-source, thus saving billions to the taxpayers, and why doesn't MS move a lot of its developers overseas? Taxpayers would win, MS would probably save tons of money and partially compensate for the lost revenue.
I have never worked at Microsoft, but I have a bunch of friends working there. None of them are U.S. citizens. Many of them are Indian, and half of what they make at MS in the U.S. would buy them an upper middle class lifestyle in Bangalore, allow them to be closer to family, to enjoy a high social status (developers have no status in the U.S.), and they could even hire maids to take care of their children and cook for them.
From an economic point of view, it would make sense to move towards greater efficiency, wouldn't it?
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.
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.
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.
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.
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.
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.