June 6, 2012

Jobless Rate Rises in May, So Why Does U.S. Export Jobs?

By Andrew Butter

Oh dear, new headlines!! Only 69,000 more jobs in May…below “expectations” so now the America is doomed!!! Told you so…I predict there will be Armageddon unless of course someone DOES something.

In fact that’s certain unless “someone” does what my pet-theory says they should do. But they probably won’t because no-one understands my true genius, so that will teach them!!

I’m just wondering whose “expectations” are the base line. I can see lots of opinions all over the internet with [Doom] + [Gloom] = [Woe-Is-Me], but no one is making hard predictions. Thing is, if you don’t make predictions…write them down in a public place so people can laugh about them and poke fun at you later…how can you have expectations?

Here’s a prediction this guru-genius made six months ago based on sitting in meditation for three days and connecting with his third-chakra…compared to actual:


Sorry not to be all dressed up in sack-cloth and covered with ashes so that I can get some speaking engagements because I can’t get a proper job, but the way I read that, unless my astigmatism is playing up again, employment in U.S.A. is increasing like as if it was on a rail-track linked to my third-chakra.

Hey Joe…Want More Jobs?

Easy, it wouldn’t be hard to add another 5-Million jobs to the 5-Million (net) that are in the pipeline….but how?

Well last Thursday night I had a wonderful conversation with a bright young man about how multinational U.S. companies avoid paying tax on the money they earn outside of U.S.A.  He is an accountant; his job is to make sure it’s all “legal”.

We stayed up until the wee-hours, I drank a whole bottle of wine washed down with Jack Daniels (good for the chakras), and he drank two whole (big) bottles of Perrier Water…and everyone in earshot moved to the other side of the bar to escape the unspeakable boredom.

50% of the earnings of companies on the S&P-500 are generated outside of America, I wouldn’t be surprised if the reality was 70%; the difference is what the IRS can’t see…there is quite a big difference between making money and what you are obliged, under the law, to tell them about. There is a lot of money there…how about this for a solution, how about closing down the capitalist-scum U.S. multinationals so that they can’t avoid paying tax?

That’s my theory.

Meanwhile, whilst the great minds who said they had discovered WMB in Iraq ponder the possible un-intended consequences of doing that, from a practical perspective, how do you avoid paying 37% U.S. corporate tax if you are a multinational?

Simple, if you make anything in U.S.A. that you intend to sell outside of U.S.A. find a way to make it outside U.S.A.

If say you make a widget in Guangdon and sell it to Saudi Arabia via a subsidiary company set up in Mogadishu then you don’t pay tax in Guangdon (it’s a Special Economic Zone), and you can add whatever overheads, amortization or whatever you like before your subsidiary reports how much money it made to the mother company (typically about 5-cents), who report that to the I.R.S.

And if you are really smart, you don’t actually own anything, you outsource the production to a third-party in Guangdon and you get a great price because they can finance based on your long-term commitment.

Is that a secret? Not really, Mitt Romney set up a lot of those deals when he worked for Bain (clever chap but I’m not quite sure whose side he’s on), there is a HUGE incentive in the U.S. Tax code pushing U.S. corporations to NOT make anything in America.

So there you have it, Plan A is you increase the numbers of detectives in the IRS (creating 100,000 new jobs and another 50,000 pages of regulation), or Plan B you simply forget about taxing U.S. Corporations on the profit they make selling their products outside of U.S.A. given that only generates 5-Cents x 1,000 = $5 a year.

I recommend Plan-A…that’s what the chap who used to live in a villa with a big wall around it in Pakistan…and got the double-tap for his troubles…would have wanted.

About the Author - Andrew Butter is Managing Partner of ABMC, an investment advisory firm based in Dubai that he set up in 1999, and has been involved advising on large scale real estate investments, primarily in Dubai.  (EconMatters author archive here)

The views and opinions expressed herein are the author's own, and do not necessarily reflect those of EconMatters.

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