Obama puts unitary tax in spotlight

Although President Obama hasn’t referred to it as such, several times recently he has called for global taxation of the profits of multi-national corporations.

In the absence of a unitary tax on a multinational corporation’s worldwide income, it is a simple matter to manipulate the financial transactions of a company to keep from paying taxes to a state or to the federal government. Here’s how it works:

Corporation A in say, Japan, owns Corporation B in Japan and Corporation C in California. Corporation B makes car components and Corporation C assembles them in California. Corporation B gouges Corporation C in invoicing the company for the car components, so that on the books in California, very little profit is made. However, Corporations A and B make out like bandits. Even though their profits were generated in California, they pay next to nothing in California taxes.

A unitary tax would tax Corporation A because it owns Corporation C, so it can’t escape taxation by making it look like the profit was made overseas.


One Response to Obama puts unitary tax in spotlight

  1. Steve G Fri, Feb 17, 2012 at 6:23 pm #

    I still think there is a flaw in Obama’s plan. All the company would have to do is enter an exclusive distribution contract with a separate company who is USA based and has no oversea ties. They would be allowed to make a small profit, but the majority of the profits would still be made overseas.