Ornitz says being out of work is "exponentially more difficult," than she thought it'd be. "Not working is not an option. I come from a family where people worked until they were retired or dead." Ornitz has applied for 30 jobs near Los Angeles and has had just two interviews. She's collected 24 unemployment checks - $450 each week. She calls the unemployment checks "a godsend." "It is a lifeline for me and to take that away is going to be devastating," says Ornitz. ...
Ornitz is frustrated by what she sees in Washington. "They don't face the things we face. They all want my vote -- but I don't exist to them. They don't want to see it. We're not important to them." She added: "I don't think they care one bit - on either party."
In case you assumed that the Republicans have a monopoly on antilabor legislation, think again. The Computer Professionals Update Act was proposed by a Democrat, Sen. Kay Hagan, whose state is home to a heavy concentration of technology-related companies, as well as financial services outfits, including Bank of America, that are huge employers of IT workers. (In what's likely inadvertent humor, the bill is also referred to as the CPU Act.)
Hagan's bill would amend the Fair Labor Standards Act (FSLA), which mandates that workers be paid time-and-half for work beyond 40 hours in a week -- in some cases, beyond 8 hours in a day. There are already numerous exemptions to that requirement, including salaried executives, professionals, and any IT worker "who is a computer systems analyst, computer programmer, software engineer, or other similarly skilled worker." The current version of the FSLA goes on to specify that exempt-from-overtime jobs include "systems analysis techniques and procedures design, documentation, testing, creation, or modification of computer programs."
Meet the CPU Act. But the CPU Act broadens that exemption so much it appears that any IT worker who is paid more than $27.63 an hour (and who isn't?) would lose the right to overtime. Here's what it says:
Any employee working in a computer or information technology occupation (including, but not limited to, work related to computers, information systems, components, networks, software, hardware, databases, security, Internet, intranet, or websites) as an analyst, programmer, engineer, designer, developer, administrator, or other similarly skilled worker, whose primary duty is
(A) the application of systems, network, or database analysis techniques and procedures, including consulting with users, to determine or modify hardware, software, network, database, or system functional specifications; or
(B) the design, development, documentation, analysis, creation, testing, securing, configuration, integration, debugging, modification of computer or information technology, or enabling continuity of systems and applications; ...
A second Democrat, Sen. Michael Bennet of Colorado, is the cosponsor along with two Republicans, Sens. Mike Enzi of Wyoming and Johnny Isakson of Georgia.
The motivation: Employers want to cut costs. The CPU Act is being discussed in Congress just as the jobs picture for IT workers has started to improve. With hiring on the upswing, employers want to keep costs as low as possible, and when jobs can't be outsourced, some are reluctant to provide the same level of pay and benefits they offered in the past. ...
Because most IT workers are not members of a union (and don't seem to want unionize), it isn't clear who's fighting the bill. The AFL-CIO opposes it, but I don't know if the organization is putting real muscle into the effort. Paul E. Almeida, president of the AFL-CIO Department for Professional Employees, did send a letter to Congress, saying, "The same companies that send work offshore and bring lower-paid workers to the U.S. on H-1B visas now want to pay U.S. workers less in the U.S." ...
If you want to keep your overtime pay and stop this nonsense from spreading to others in the workforce, there's no better time to let your representatives know how you feel and then vote accordingly. And don't underestimate the power of protest. Earlier this year, we saw the rapacious banks scurry away from plans to impose new debit fees on users after Congress forced them to charge merchants less. Additionally, the Occupy Wall Street protests have refocused the politicians on the growing divide between corporations, whose income continues to grow, and most people, whose income has not. Maybe if IT occupied the data center, it might escape losing its overtime.
Performance reviews have long received poor grades, even from those who conduct them. Nearly 60% of human-resources executives graded their own performance-management systems a C or below, according to a 2010 survey by Sibson Consulting Inc. and WorldatWork, a professional association. And one academic review of more than 600 employee-feedback studies found that two-thirds of appraisals had zero or even negative effects on employee performance after the feedback was given. ...
A yet-to-be published study, by researchers Vicki M. Scherwin, Jean-Francois Coget and Randall J. Kirner, examined 17 firms without formal performance appraisal systems. Those organizations all reported low turnover, high employee morale and strong relationships between managers and employees, among other benefits, found the study. When feedback is "not going to be used to judge you or your fate in the company, you are more likely to be open about where you need to grow and it's going to be far more effective," says Dr. Coget of California Polytechnic State University, San Luis Obispo.
Selected reader comments follow:
I think most engineers such as myself, who have skills very high in demand- Networking, Cisco, are really prima-donas when it comes to employment. Knowing that many jobs are waiting for them, should they decide to leave their present company. I have actually resigned from the present company I work for now, because certain things were bothering me. The CEO of our whole company, talked me into staying, by stating that he will personally take of anything that bothers me in the workplace. And he was good to his word on that, so I have stayed. It's not even a money thing with me, Networking Engineers can always make a decent living. I would rather hear the words- "We value and appreciate your hard work, and contributions to the company" than get a pay raise. But I know most workers do not have the same type of luxury that I do.
Otherwise, you would get no warning at all.
But, other than this, they are useless. Useless because any boss I ever had already has decided how much of a raise, if any, they will give you and the numbers are just backed into that to produce the appropriate review "score." If they aren't doing this, they want you gone anyway.
Two of the trends that corporations are focusing on right now are customer experience and innovation. You have to be creative about how you enable your team to be more innovative. And if you're burned out, you're going to take it out on your customers.
Sabbaticals also increase loyalty. We're always quoting Intel as having given thousands and thousands of sabbaticals over time. They have a two-month sabbatical, plus you can add a one-month vacation.
Foreign students who graduate from U.S. universities can usually get an H-1B visa to work in the United States, but such visas are good only for a maximum of six years, and the holder can only work for the company that sponsored the H-1B. If the student has no family ties in the country, obtaining a green card, which grants the right to live and work permanently in the U.S. for any employer, can be difficult and take years. ...
Other partnership members include the CEOs of Microsoft, AOL, eBay, Xerox, and Compuware, as well as tech and sports entrepreneur Mark Cuban. Microsoft officials have previously said that the company has about 10,000 open positions it can't fill due to a lack of qualified workers. The study also found that for every 100 H-1B workers introduced into the economy, an additional 183 jobs are created for U.S. natives. It also said that the average, foreign-born adult with an advanced degree pays more than $22,500 in taxes, while receiving about $2,300 in benefits.
Selected reader comments follow:
The Senate Office of Public Records website shows that with Client Name: Intel, Filing Year: 2011, Issue: Immigration that Intel Corporation has expended $3,231,290.00 in the 2011 reports tabulated to date. Microsoft, etc. are spending similar large sums to help procure legislation that benefits employer interests at the expense of older American IT professionals. As I note in my 2007 investigative article "The Greedy Gates Immigration Gambit" that Jack Abramoff and his team helped guide the approximately $100 million in Microsoft's legislatively-connected expenditures between 1995-2000. (To find the article, search via the title for the PDF version of the article.) Microsoft helped to procure three employer-friendly changes in the controversial H-1B Visa legislation.
To me, this is corruption, pure and simple as "things of value" were supplied in exchange for "official acts." I believe that this illegal and unethical conduct should stop.
The reality is that H1-B and L1 visas (IBM uses a lot of L1 visas to bring in employees from IBM India, and there is no limit on the number of L1 visas) have driven down the cost of I.T. labor and causes tens of thousands of U.S. I.T. people to lose their jobs.
Our Arkansas Republican is working for the people that pay his bills...corporate America.
For almost 200 years the U.S. had tariffs on goods to not allow easy dumping of cheap foreign goods. This idea goes back to the time of Alexander Hamilton as public policy. Now that the personnel office has been replaced by the Human Resources department we in the U.S. are not only getting dumping of cheap Chinese products we are getting dumping of cheap workers.
The 'free trade' garbage and the other neo-liberalism nonsense spouted by the Ayn Rand cult from the Chicago School (the Greenspans, Friedmans, Pauls, Cantors, Boners, etc.) has not only been proven wrong time and again it is now come home to wreck the U.S. and not just foreign countries anymore.
The elites want the return of feudalism so they pursue what Roosevelt termed 'economic royalism' and they throw in some old time religion and there you have it, back to the Middle Ages. Everyone had their place knew their place and it was all as their God said it should be
Join a union and pay them a monthly bill instead of wasting the money on Comcast or some other right wing corporatist company to tell you lies.
The drop in demand is most prevalent in highly-skilled jobs such as engineering, IT, finance and accountancy – roles which have historically seen high levels of recruitment from countries such as India, Singapore and the US.
But with many nest eggs today smaller than they should be, a better approach, some financial advisers say, is to tap these accounts simultaneously in order to minimize taxes over time.
The key is to make full use of the lower federal and state income-tax brackets many retirees are in early in retirement. To further reduce taxes, it may make sense for those with after-tax incomes between $40,000 and $90,000 to defer Social Security, says James Mahaney, vice president of strategic initiatives at Prudential Financial Inc.
Those who stick to the convention of annually spending no more than 4% of their initial retirement savings—adjusted each year for inflation—can "use the tax code to make their portfolios last up to seven years longer," says Baylor University Prof. William Reichenstein, a principal at Retiree Inc., a Leawood, Kan., company that helps retirees plan tax-efficient withdrawals.
Most of these cuts were not dramatic and only a handful of programs were killed outright. But few received additional funding, despite the growing needs of the elderly and their families. For many programs, this was the second year in a row their budgets were frozen. And chances are good they’ll be frozen again when Congress approves their 2013 budgets a year from now.
The funding changes were just part of what has been a steady pattern—one likely to accelerate as Congress and the President confront significant budget shortfalls. The good news for these programs is that, in face of fiscal gridlock, much bigger budget reductions have been delayed. The bad news is this gridlock won’t last forever and many senior services will face deep cuts in coming years. Much, of course, will depend on the outcome of the 2012 elections.
At first glance, this regularity seems comforting, suggesting that the boomers and the cohorts that follow are as well prepared for retirement as their parents. But that conclusion is wrong. For while the boomers have been accumulating wealth at much the same pace as their parents, the world has changed in four important ways.
1) The prevalence of defined benefit pension plans has declined dramatically over the last 25 years. ...
2) Real interest rates have fallen significantly, so a given amount of wealth will now produce less retirement income. If people were interested in generating a given stream of income, the significant decline in interest rates since 1983 would have been expected to boost wealth accumulations. But it did not. ...
3) Life expectancy has increased, so accumulated assets must support a longer period of retirement. ...
4) Health care costs have risen substantially and show signs of further increase, indicating a need for greater accumulation of retirement assets.
So from now on, VW’s email server will cease routing messages 30 minutes after the end of an employee’s shift and will only begin sending mails again half an hour before the next working day begins. ...
A VW works council spokesman confirmed the existence of the BlackBerry agreement but explained that the rule did not apply to senior management or other workers who fall outside trade union-negotiated pay brackets. The works council sought the restriction in response to the tendency for BlackBerry users to be contactable by employers at all hours and amid a growing awareness in Germany of the risks of employee “burn-out”.
Selected reader comments follow:
Some people want to work like this (and they are usually very sad people with no personal or family life) - and they are welcome to it - they will also no doubt be paid many times more than the average wage. To conclude: if you want employees in an information economy to filter and respond to communicated information that belongs to and concerns a private business at all hours of the day, then you will have to pay them more to do so. The more logical, and cheaper solution, is to be more efficient with the passing back and forth of information so that it does not need to be handled at 11PM on a Friday night, just before Xmas.
While a solid performer at IBM, I watched as others who were also solid performers get the dreaded pink slip just for being in the wrong place at the wrong time. I just didn't want to roll the dice any longer with a family to support. Not to mention management really couldn't care less about my career other than me squeezing 25 hrs of work in a 24 hr day. And come assessment time, it was always the same "We don't have much of a pool this year to give you any bonus, raise, or promotion - sorry." Talk about a broken record.
So I found a position at another IT company not really knowing if "the grass was greener on the other side of the fence." Having worked at this new company, though, I not only know now I made the right decision, but wish I hadn't have waited so long. In less than a year here, I can already feel a large weight has been lifted from my shoulders. My pay is 15% more and I just found out I will get a 12% bonus in my next paycheck for the contributions I've made. But most of all, I really feel a since of worth - a sense of TRUE RESPECT from my management team. Totally a 180-degree turn from IBM management.
Best of luck everyone. Keep up the fight. But realize there ARE companies out there that truly value your hard work and commitment, and at the same time treat you like a human being. -OverThere-
In the Wyden-Ryan proposal, the government would give each older citizen a certain amount of money — basically, a voucher — with which to buy a health insurance policy. The recipients would decide which policy to buy, based on whatever combination of benefits and price they found most appealing. If they chose a plan that cost more than the voucher, they would have to pay the difference. An earlier premium support plan by Mr. Ryan would have totally replaced traditional Medicare. This latest one would preserve Medicare as an option — although, critically, it would not guarantee that the voucher was enough to make Medicare affordable or ensure that private plans could not design a benefits package to attract only the healthiest patients. If this doesn’t sound like the kind of sweeping reform that will save us … it’s because it isn’t. ...
Premium support is classic cost shifting, rather than cost cutting. Unless growth in health care costs is low, Medicare beneficiaries will just have to pick up the difference between the voucher’s value and the cost of the health insurance plan they purchase. In fact, the original Ryan plan would have increased out-of-pocket costs for older people by more than $6,000 in 2022. And we can’t depend on competition to bring costs down. Competition among insurance companies in general has not lowered them — in fact, from 1970 through 2009, Medicare spending per beneficiary grew at a slower rate than that of private health insurance. ...
One of the biggest problems in the Wyden-Ryan plan is a result of what is called adverse selection. If you pay an insurance company the same amount for all enrollees, it will want to avoid insuring sick people in order to save money. Under the Wyden-Ryan plan, insurance companies would have to accept both the healthy and the sick. But they would still compete to cover the healthiest Medicare beneficiaries, offering them desirable services like health club memberships, while leaving the rest to traditional Medicare. As a result, Medicare would end up with significantly higher costs. ...
So if premium support plans aren’t the answer, what should be done about Medicare? To address the root of the cost problem, we must change how we pay doctors and hospitals. We must move away from fee-for-service payments to bundled payments that include all the costs of caring for a patient, thereby encouraging providers to keep patients healthy and avoid unnecessary services. Medicare should announce that it will make this change by Jan. 1, 2022, and that it will begin by switching to bundled payments for cardiac and orthopedic surgery within one year and for cancer patients within five.
Premium support will not reduce the government’s costs without shifting those costs to older people who can’t afford them. Only a plan that transforms how we pay doctors and other health care providers can do that.
"But dependency on government has never been bad for the rich. The pretense of the laissez-faire people is that only the poor are dependent on government, while the rich take care of themselves. This argument manages to ignore all of modern history, which shows a consistent record of laissez-faire for the poor, but enormous government intervention for the rich." From Economic Justice: The American Class System, from the book Declarations of Independence by Howard Zinn.
Selected listener comments follow:
Let's assume a business owner facing a tax increase can hire a new employee at an "all in" annual cost of $50,000, and let's also assume that employee will generate an additional $75,000 in annual revenue for the business. That would give the owner an extra $25,000 in profit each year. Why would any rational business owner turn down the additional income? (If your taxes were going up, would you turn down a $25,000 pay raise?)
If owners would refuse to hire employees who would generate more income for their businesses because tax rates are rising, then the reverse also would be true. That is, lower a business owner's tax rate and he/she would be willing to hire an employee who would reduce profits. Show me an owner who who hires employees that lose money for the business, and I'll show you a business that won't be around for long.
When 6 Walton family members make what the bottom 30% of employed Americans make. When Wal Mart workers are not able to organize unions. When the largest employer in the world gives minimum insurance coverage. How in the hell can anything change?
The claim that successful business people and high income earners are "job creators" is a myth. Success in business is more about job destruction than creation. Any business that comes into extra capital from something like a tax cut is more likely to use the money to reduce labor costs than for any other purpose. I had a job as an engineer a couple of years ago in which I personally reduced the cost of production of the companies products by $1.5 million by redesign of the products and methods of production. Virtually all of this cost reduction was labor costs either direct of of suppliers. A little arithmetic will tell you that this represents 40 jobs eliminated in one year by one engineer (actually 41, as I was laid off at the end of the year as a reward for my success). This is just one example of how business uses its available capital.
The idea that small business creates most new jobs is based on the experience of the the past few generations during which our economy has been dominated by a series of bubbles that were primarily fiction. These jobs were not real or sustainable and never were. Tim in Texas.
Brandeis understood that at some point the concentration of economic power could undermine the democratic requisite of dispersed political power. This concern looms large in today’s America, where billionaires are allowed to spend unlimited amounts of money on their own campaigns or expressly advocating the election of others. ...
Enough is enough. Congress should reform our tax law to put the brakes on further inequality. Specifically, we propose an automatic extra tax on the income of the top 1 percent of earners — a tax that would limit the after-tax incomes of this club to 36 times the median household income.
Importantly, our Brandeis tax does not target excessive income per se; it only caps inequality. Billionaires could double their current income without the tax kicking in — as long as the median income also doubles. The sky is the limit for the rich as long as the “rising tide lifts all boats.” Indeed, the tax gives job creators an extra reason to make sure that corporate wealth does in fact trickle down. ...
Here’s how the tax would work. Once a year, the Internal Revenue Service would calculate the Brandeis ratio of the previous year. If the average 1-percenter made more than 36 times the income of the median American household, then the I.R.S. would create a new tax bracket for the highest 1 percent of income and calculate a marginal income tax rate for that bracket sufficient to reduce the after-tax Brandeis ratio to 36.
This new tax, if triggered, would apply only to income in excess of the poorest 1-percenter — currently about $330,000 per year. Our Brandeis tax is conservative in that it doesn’t attempt to reverse the gains of the wealthy in the last 30 years. It is not a “claw back” tax. It merely assures that things don’t get worse.
Romney has had to contend with the fact that Bain made a lot of its money buying up companies, then laying off workers and reneging on benefits to gut those companies, burying them with debt as Bain walked away with millions. In fact, one of his former business partners has explicitly said, “I never thought of what I did for a living as job creation.” And as it turns out, even after Romney left the firm, he was profiting from Bain’s activities due to a lucrative retirement deal:
In what would be the final deal of his private equity career, he negotiated a retirement agreement with his former partners that has paid him a share of Bain’s profits ever since, bringing the Romney family millions of dollars in income each year and bolstering the fortune that has helped finance Mr. Romney’s political aspirations. ...
Since Romney left, Bain has made its money gutting companies like KB Toys and Clearchannel, laying off thousands of workers and leaving the companies under heavy debt loads, while Romney has reaped the benefit. Adding insult to injury, the money Romney has been collecting from Bain is likely not taxed as normal income but as “carried interest,” meaning it is subject to the capital gains tax rate of 15 percent rather than the top income tax rate of 35 percent:
[S]ince Mr. Romney’s payouts from Bain have come partly from the firm’s share of profits on its customers’ investments, that income probably qualifies for the 15 percent tax rate reserved for capital gains, rather than the 35 percent that wealthy taxpayers pay on ordinary income. The Internal Revenue Service allows investment managers to pay the lower rate on the share of profits, known in the industry as “carried interest,” that they receive for running funds for investors.
In a recent Pew Foundation poll, 77 percent of respondents said too much power is in the hands of a few rich people and corporations. That's understandable. To take a few examples:
Congress hasn't even closed a loophole that allows mutual-fund and private-equity managers to treat their incomes as capital gains. So the 400 richest Americans, whose total wealth exceeds the combined wealth of the bottom 150 million Americans put together, pay an average of 17 percent of their income in taxes. That's lower than the tax rates of most day laborers and child-care workers. ...
Get it? "Big government" isn't the problem. The problem is big money is taking over government. Government is doing less of the things most of us want it to do -- providing good public schools and affordable access to college, improving our roads and bridges and water systems, and maintaining safety nets to catch average people who fall -- and more of the things big corporations, Wall Street, and the wealthy want it to do.
Under threat are what Barack Obama has described as the lowest tax rates for the wealthy since the 1950s, while a tax break enjoyed by private equity bosses and hedge fund managers will come under close scrutiny should Mitt Romney, a former private equity executive, be his Republican opponent.
But like the disparate Occupy Wall Street movement, the rich employ a variety of tactics in their defence. One is to criticise the divisive tone of the debate itself as something that violates traditional American values. Leon Cooperman, a hedge fund manager and Goldman Sachs veteran, last month attacked the populist tactics of the president in an open letter widely circulated on Wall Street. ...
Jamie Dimon, chief executive of JPMorgan Chase, has also questioned the demonisation of those who are successful. Stephen Schwarzman, a founder of private equity group Blackstone and a fundraiser for Mitt Romney’s campaign, has called for shared sacrifice, arguing that attacking the rich alone cannot solve America’s fiscal problems.
Mr Schwarzman built his fortune with the help of a tax break known as the carried interest exemption, which allows money managers to treat their share of client investment returns as capital gains, which are subject to a lower rate of tax than income. ...
Others point to their contribution to the economy. In October, John Paulson, the hedge fund manager who made billions betting that large numbers of subprime borrowers would default on their mortgages, issued a statement claiming that his hedge fund Paulson & Co has created over 100 high-paying jobs in New York City since it was founded.
Cooperman, 68, said in an interview that he can’t walk through the dining room of St. Andrews Country Club in Boca Raton, Florida, without being thanked for speaking up. At least four people expressed their gratitude on Dec. 5 while he was eating an egg-white omelet, he said.
“You’ll get more out of me,” the billionaire said, “if you treat me with respect.”
What’s truly amazing is that they’re hearing things that aren’t actually being said. Obama and others say that the rich have had huge income gains relative to everyone else, so they should be asked to pay somewhat higher taxes; the rich hear that and it comes out “you are all evil”.
What I want to know is, how did these people get where they are with such incredibly thin skins? Can you become a Master of the Universe while screaming “Ma, he’s looking at me funny!” at every hint of criticism?
In the 2010 election cycle, 26,783 individuals (or slightly less than one in ten thousand Americans) each contributed more than $10,000 to federal political campaigns. Combined, these donors spent $774 million. That’s 24.3% of the total from individuals to politicians, parties, PACs, and independent expenditure groups. Together, they would fill only two-thirds of the 41,222 seats at Nationals Park, the baseball field two miles from the U.S. Capitol. When it comes to politics, they are “the one percent of the one percent."
The report also pointed out that “overwhelmingly, they are corporate executives, investors, lobbyists and lawyers” and that “a good number appear to be highly ideological.” In the 2010 election cycle, the report revealed, “the average one percent of one percenter spent $28,913, more than the median individual income of $26,364.”
Unlike the other 99.99% of Americans who do not make these contributions, these elite donors have unique access. In a world of increasingly expensive campaigns, The One Percent of the One Percent effectively play the role of political gatekeepers. Prospective candidates need to be able to tap into these networks if they want to be taken seriously. And party leaders on both sides are keenly aware that more than 80% of party committee money now comes from these elite donors. ...
To the extent that donors listed occupations (many do not), the most common titles were variations on “President,” “CEO,” “Executive,” Chairman”, and “Investor.” Of the 10 companies with the most representation in The One Percent of the One Percent in the 2010 election cycle six are financial companies. Goldman Sachs, with 92, far outpaces everyone else. Citigroup, with 32, is second.
Nope. Turns out they were talking Monday night about their favorite scenes from “Braveheart.” About 10 House Republicans went to the microphones to share their memories of the Mel Gibson film, Republican sources told my Post colleagues Paul Kane and Rosalind Helderman. ...
That the House Republicans would embrace a doomed cause and its martyred leader gets at their main problem in the majority: They’d rather make a point than govern the country. And in this case, it’s not entirely clear what point they’re trying to make.
Is it making sure the tax cut is paid for? For the last decade, Republicans approved billions of dollars in tax cuts, mostly for the rich, without paying for them.
The GOP leaders have somehow managed the remarkable feat of being blamed for opposing a one-year extension of a tax holiday that they are surely going to pass. This is no easy double play.
This isn’t what Congress had in mind when it did away with the federal tax credit for companies’ Puerto Rican profits. The break was attacked by Republicans and Democrats as too expensive, and, as of 2006, it ended. So Medtronic and other companies found a solution: They avoid taxes by moving those profits into shell subsidiaries in havens such as the Cayman Islands, Switzerland and the Netherlands.
“By aggressively shifting income to offshore affiliates, companies appear to be getting U.S. tax benefits that are equal to or greater than the ones they did under the old Puerto Rico tax break,” said Stephen E. Shay, former deputy assistant secretary for international tax affairs at the U.S. Treasury and now a Harvard Law School professor. “That almost certainly was not the intent of the repeal.”
The profits that used to benefit from the Puerto Rico credit are now part of a mountain of tax-deferred offshore earnings totaling at least $1.38 trillion, according to a May report by J.P. Morgan Chase. Companies including Apple, Google, Microsoft and Pfizer are lobbying Congress for a tax holiday to bring those profits home. Without such a break, any cash brought back to the United States would be taxed at the federal income-tax rate of 35 percent, with a credit for foreign income taxes already paid. ...
In a memo sent to IRS auditors in February 2007, the agency called profit levels “extraordinary” in many of the offshore units created to take over for the subsidiaries that got the Puerto Rican break. In many cases, those units are generating “an inordinate amount of the profits, i.e., amounts in excess of what would be expected, based upon activity,” according to the IRS memo. ...
Companies legally move profits offshore using “transfer pricing,” the system of allocating income between units in different countries. This lets corporations such as Medtronic say that profit from a $5,000 pacemaker was earned in the Cayman Islands, even though the device was manufactured in Puerto Rico and sold in, say, Houston. The company has accumulated $14.9 billion in income allocated to its foreign subsidiaries on which it hasn’t paid any U.S. income tax, according to its most recent annual report. ...
The profit shifting that can stem from transfer pricing costs the U.S. government an estimated $90 billion a year, according to Kimberly Clausing, an economics professor at Reed College in Portland, Ore. That’s about double the Department of Homeland Security’s annual budget and dwarfs the revenue loss from the various tax breaks under scrutiny. ...
Medtronic’s tax rate has plummeted. In 1995, the year before congress abolished the Puerto Rico credit, the break cut 4.2 percentage points off the company’s effective tax rate, helping to lower it to 33.5 percent. By 2011, Medtronic’s tax rate was down to half that. Overall, the savings from the low-taxed overseas income boosted Medtronic’s net income in fiscal 2011 by 30 percent, to $3.1 billion, based on tax disclosures in the company’s most recent annual report.
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