By Rex Sinquefield, May 3rd, 2013
For nearly a year, this column has provided evidence that taxes matter and that income tax policy, in particular, directly impacts business decisions, employment, and ultimately the economy and the stability of workers’ lives. This week, for those who fervently refute this position, developments in France and the U.S. offer sound and practical proof in support of my ongoing thesis.
It all began in October last year, soon after France’s president Francois Hollande’s all-out assault on the French workers’ and business owners’ ability to acquire working wealth. His new administration’s revenue-generating approach of raising taxes on income, property, inheritance, and capital gains resulted in outrage from a large cadre of young (25-34 years old) entrepreneurs, dubbed Les Pigeons (French slang for one who is being duped), and prompted an organized social media campaign protesting business-stifling taxes.
The message was heard loud and clear: If you limit our ability to create businesses, invest in the development of new technologies, employ people, and make a profit, then we will leave. The outrage expressed by this youthful group of new-age industrialists and modern-day revolutionaries captured the attention of the socialist French regime and believe it or not… the old guard changed its course.
In a response that must be shaking socialism’s foundation across the world, President Hollande’s administration succumbed to the Les Pigeons’ squawking and cage-rattling by adjusting its policy trajectory and not raising capital gains taxes. The effort now seems hyper-focused on convincing employers that the administration does not see entrepreneurs as the enemy. Quite to the contrary, Hollande seems to be waging an all-out effort to keep entrepreneurs from taking flight. The confrontational, anti-business rhetoric that his administration led with in the last year now has turned into a gentle and welcoming coo.
In a story closer to home this week, Apple successfully avoided paying corporate income taxes in a move that it saw as critical to its future. In the midst of a stock buyback strategy, Apple found itself shorthanded on U.S.-held cash. Facing corporate tax code regulations that restrict using off-shore cash to buy back stock, Apple had two possible options. The first was to transfer foreign held funds into the United States and face up to 35 percent in corporate income tax payments. The second option was much more attractive for obvious reasons: Issue $17 billion in corporate bonds and use the proceeds to finance the buyback. Without a doubt, the best move for Apple and its shareholders was issuing the bonds, and, in doing so, Apple created the largest investment-grade bond offering in history.
The moral of these two stories seems clear. The common thread here is that penalizing individuals who work every day in pursuit of a better life and clipping the wings of those who have vision, take a risk, and create new industries does little to inspire the entrepreneurial spirit and promote job growth. Income taxes do matter, and harmful tax policies cause flocks of industry leaders and fledgling small business owners to find a way to successfully maneuver to their best advantage. That could possibly mean leaving their income revenues on foreign soil, such as Apple is doing or taking flight altogether to move their base of operations to more attractive destinations, such as threatened by the angry birds of France.