According to new analysis by Standard & Poors, for the
first time ever, foreign income taxes paid by the 500 large companies in the
S&P 500 index paid have exceeded U.S. federal income taxes paid.
This surprising result occurred in 2008.
In fact, foreign income taxes paid by S&P 500 companies actually
increased by $11.5 billion or 9.3%, as U.S. federal income taxes declined
$43.9 billion, or 29.1%.
This is both encouraging and discouraging. The growth
overseas has saved and is bolstering the U.S. economy. We are less dependent
upon domestic growth for corporate profits. Those who have followed our advice
this past year online (see articles in the "Preferred Portfolios and
Investments" section) have benefited from our foreign fund recommendations
which are positioned to take advantage of this overseas growth.
What's discouraging and challenging is making up for
lessened revenue coming into federal government coffers. That's why the growing
federal budget deficit is concerning given increased government spending. It
also highlights the importance of corporate tax rates around the world. The U.S. has one of
the highest corporate income tax rates in the world (the U.S. is second only to Japan - see chart below) so the
many larger companies which can choose where they wish to do business are
increasingly finding domiciles with lower corporate income tax rates.
Texas and Washington have gross receipts taxes rather than traditional
corporate income taxes. For comparison purposes, we converted the gross
receipts taxes into an effective CIT rate. See footnote 2 for
(a) Combined rate adjusted for federal deduction of state taxes paid
Some other findings from the recently released S&P
In 2008, S&P 500 foreign sales increased 8.5%, while
domestic sales decreased 0.3%.
European sales represented 27.7% of foreign sales, with 9.3%
coming from Canada. Asian sales decreased to 13.2% from 16.8% in
For those companies providing detailed results, 47.9% of all
sales were produced and sold outside of the United States in 2008, up from
45.8% in 2007 and 43.6% in 2006.
While the current recession has had significant impacts on
local markets, the overall trend has not significantly changed. Growth outside of the United States is expected to be greater than
that of the growth within the U.S.
The shift of labor, capital, and resources are expected to
continue outside of the U.S.
where a growing worldwide middle-class is emerging, even as the U.S. is viewed
with much higher political stability. (This trend and associate investment
trends is extensively covered in Jeremy Siegel's book, Stocks for the Long Run,
which is covered in the "Book Summaries" section.)
Copyright Eric Tyson, 2008 - 2014 all rights reserved.
Eric Tyson is the only best-selling personal finance author who has an extensive background as an hourly-based financial advisor and who does not accept speaking fees, endorsement deals or fees of any type from companies in the financial services industry or product or service providers recommended in his articles, books and his publications.