Capital City: Zug, Population: 15

                60 Minutes recently reported on over $1.2 trillion that has weaseled its way out of US coffers into the hands of foreign governments.   What is this treasure trove; it’s investment, capital and primarily corporate taxes on billions in revenue from US companies whose assets have been shifted offshore to avoid our aged, outrageously high tax rates.

                To report, they traveled to a tiny unheard of town in Switzerland called Zug specifically to its economic development office. Zug in past years has worked with companies to offer a tax rate lower than Switzerland’s which itself is far less than the US. In effect, this tax haven within a tax haven allows for a mere 15-16% corporate tax rate. The result is that many companies move their corporate headquarters to Zug… well sorta. To explain let’s look at Transocean, the company involved in BP’s recent oil spill catastrophe, which moved and now claims to be internationally head quartered in Zug. Sounds like a pretty big move right? Transocean maintains about 1300 employees in Houston and less than 15 in Zug none of whom is even the CEO. In fact international headquarters comprise of a relatively small office in a rented business complex which somehow transfers the company’s citizenship to Switzerland. And this story isn’t all that uncommon.

                The obvious solution would be to impose tighter restrictions which congress did in 2004 only to see these companies relocate altogether or lawyers find new loopholes to avoid full payment. Sleazy as this may seem, companies have a very valid point in searching for low tax alternatives. Un-American as their actions may seem, these actions funnel money into the hands of shareholders many of whom are Americans.  When taxes result in about 60 to 90% lower tax rates, companies simply cannot refuse.

                However, this occurs at the cost of thousands of American jobs. In the example of Ireland, nearly 60 US companies employ over 100,000 Irish workers on a 12.5% tax rate. As they put it on 60 minutes, our treasury effectually subsidizes investment in Ireland. And it’s really not that hard in today’s world. With everything computerized and digital, moving a company is as simple as moving a folder or code or data center to another country.

                The solution quite simply is to reduce tax rates but that could mean trillions in lost revenue. This is quite obviously impractical and until a better solution can be found, the US will continue to lose business to foreign states.