Tax Inversions and YOUR MONEY | Episode 204 - a podcast by Bryan Ellis - SelfDirected.org

The U.S. government is on the attack again.  New rules from the Treasury department just killed an otherwise very big corporate merger, and the motivation is simple:  GREED on the part of the Obama administration.  This isn’t a political statement.  It’s all about YOUR PORTFOLIO, and I’ll tell you exactly how RIGHT NOW.  I’m Bryan Ellis.  This is Episode #204.

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Hello, SDI Nation!  Welcome to the podcast of record for savvy self-directed investors like you, where we have but one central purpose, and that is to help YOU make great investments that are simple, safe and strong.

That’s right, ladies and gentlemen… you are the hero in the story of your portfolio, not me and not any other person to whom you look for guidance.  Or… maybe you’re the goat in the story of your portfolio.  I certainly hope not, but good news:  My job is to make you be the hero in your portfolio forevermore.

Well, well, well ladies and gents… the U.S. treasury is at it again, directly interfering with business to the benefit of nobody but itself.  The latest action is rather disgusting, and I’ll tell you all about it after today’s Wisdom of the Ancients segment, where I tell you a short proverb, saying or quote that has stood the test of time and is deeply relevant to you and me as self-directed investors.  So here’s today’s proverb:

“My son, if you have put up security for your neighbor, if you have shaken hands in pledge for a stranger, you have been trapped by what you said, ensnared by the words of your mouth.  So do this, my son, to free yourself, since you have fallen into your neighbor’s hands:  Go—to the point of exhaustion— and give your neighbor no rest!  Allow no sleep to your eyes, no slumber to your eyelids.  Free yourself, like a gazelle from the hand of the hunter, like a bird from the snare of the fowler.”

Here’s what I’m seeing in that Proverb:  I’m seeing that just as you should be incredibly careful about making commitments, you should be incredibly aggressive and purposeful about resolving bad commitments.  This proverb says we should go to the other party, push the issue, and not rest until our liability has passed.  Be very careful about make commitments; be very quick to resolve bad ones.

What do you think?  I welcome your comments in the comments section below.

This has been a busy week for the U.S. government’s role as impediment-in-chief to the U.S. economy and citizenry.

Just a little while ago, the Department of Labor published new rules that change the relationship that financial advisors have to clients using retirement accounts.  It’s too soon to know for sure, because the rules came out just a few minutes ago, but I’ve got to tell you:  I’m skeptical.  I’ll give you more about this in the next episode.

But that’s not the focus of today’s show.  Today, we talk about TAX INVERSIONS.  Oh, don’t roll your eyes… not only is this easy to understand, but it’s important that YOU understand it since it may have already directly affected your portfolio.

So here’s the deal, here in the good ole US of A, corporations face the HIGHEST TAX RATE IN THE INDUSTRIALIZED WORLD.  35% for federal, and 4.1% is the average state rate, so a total of 39.1%.

Before I continue, I want you to understand the gravity of that.  Warren Buffet is considered to be the greatest investor who has ever lived.  His company – Berkshire Hathaway – has enjoyed average annual performance of nearly 20% per year for a very long time… an astounding feat indeed, that qualifies him for reverence and respect.

Isn’t it curious that the U.S. government taxes corporations at nearly 40% nearly twice the ROI number of the greatest investor who has ever lived?  No, the two numbers aren’t the same… but the comparison is stark and illuminating.

That super-high rate is so high, in fact, that it’s having a palpable impact on the ability of large U.S. companies to build profits.  And profit, I remind you, is the reason that one creates a company.  It’s that profit that gives value to the company’s shares.  It’s those shares in your portfolio that builds your wealth.  It’s the wealth you build that provides for the needs of you and your loved ones.  So yes, the growth of corporate profits is relevant to you, particularly if you are an investor in stocks.

So what are some of these companies doing about the massively over-priced tax bills that Uncle Sam extorts from us all?

Well, they’re moving themselves to countries that don’t punish them.

It’s called an INVERSION when a U.S.-based company acquires or merges with a company located in another country with a lower tax rate, and then shifts management and headquarters to the lower-tax region in order to be subject to a lower tax burden.

In truth, it’s not much different than the affluent retired couple who lives in New York – where taxes are ridiculously high – but who then moves to Florida for most of the year, where there is no state income tax.  It’s the same thing, and it’s totally legal.

So a tax inversion is the same thing, only it’s done by a company instead of an individual, and it involves adjusting the organization of the company such that the corporation legally shifts the jurisdiction for income taxation from a high-tax place (like the United States) to a low-tax place (like Ireland).

This is exactly what was happening with two large drug companies, Pfizer and Allergan, who had negotiated a huge $160 billion merger, only to have it targeted by the U.S. Treasury department with new rules that target inversions generally and the Pfizer/Allergan merger specifically.  The Treasury department was going to make the move so painful that the merger was cancelled and a $400 Million termination fee was paid… by choice.  That’s how punitive the new rules were going to be.

Look, I’m not an investor in those companies, so my motivation to comment isn’t financial in nature.  Rather, my concern is one of FREEDOM.

Folks, the U.S. government is not acting like a government that has the best interests of its citizens at heart, even though that’s what today’s new Department of Labor rules demand of others.  Rather, Obama and his crew are creating rules – without the consent of Congress – that directly aim to CONTROL companies by force.

This is wrong, people.  It’s wrong.  The solution is much easier:  Make America be an ATTRACTIVE jurisdiction for big companies to begin with.  Make tax rates REASONABLE.  Reduce burdensome regulations so this country is a BEACON to entrepreneurship, not merely a stop along the way to a more attractive destination.

If the U.S. government would show even one ounce of respect for the effort and risk involved in starting, running and owning businesses, and thereby use tax policy as a reasonable revenue generation rather than a PUNITIVE CAGE, then tax inversions would disappear naturally, because there’d be no reason for them to start with.

I’m sick of it, folks.  There’s got to be change at the top.

My friends… invest wisely today, and live well forever.

 

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