A Dollar Saved Is Two Dollars Earned
A Dollar Saved Is Two Dollars Earned By William Cate
Two hundred and twenty-five years ago, Ben Franklin advised that
"A Penny Saved Was a Penny Earned." He didn't foresee State and
Federal income taxes. He didn't foresee State sales taxes. He
expected the Government to comply with the Constitutional
requirement that all U.S. Currency be gold or silver. A
Constitutional requirement because the Founding Fathers had seen
the economic results of issuing the "Continental Dollar," during
the Revolutionary War. This was American history that was
somehow missed by the U.S. Government in the 20th Century. Paper
currency is the core reason for annual inflation. Governments
increase the money supply and depress the value of the
previously issued money. The practice works in the short run.
However, it hurts businesses and savors in the long haul.
When a consumer saves a dollar on a product or service they earn
two dollars. The reason is that it takes two dollars in earnings
to have one dollar in spendable income. The other dollar goes to
State & Federal Income Tax and to State Sales Tax. Bargain
hunters aren't taxed on their savings. Shopping around for the
best price on anything is one way to increase your spendable
income. Shopping around means that the bargain hunter must be
willing to shop at as many stores as possible. Bargain hunter
savings are legally not taxable.
The bargain hunting principle applies to business and investing.
Owning a local business is like shopping in only one store.
There are no bargains. You must pay local and national taxes.
Owning a business with a potential international market for your
goods or services makes you a potential bargain hunter. You can
shop your tax obligations beyond your national border.
Here are two examples of the principle of corporations shopping
their tax jurisdiction. Let's assume that you are a Canadian
company with a global market for your goods or services. If your
corporate headquarters is in Canada, you will be paying about
50% in Provincial and Federal corporate taxes on your pretax
profits. However, if you move your Corporate headquarters to
Barbados, a tropical paradise in the Caribbean, you will pay
eight percent taxes on your pretax profits. The reason is Canada
and Barbados have a Double Taxation Treaty in which if you pay
the taxes on corporate income in Barbados, you aren't required
to pay the corporate taxes on that income in Canada.
Let's assume that you are a British company with a global market
for your goods or services. If your corporate headquarters is in
London, you will be paying over 50% in British corporate taxes
on your pretax profits. However, if you move your Corporate
headquarters to Cyprus in the Mediterranean, you will pay twenty
percent taxes on your pretax profits. The reason is Britain and
Cyprus are members of the European Union. If you pay the taxes
on corporate profits in Cyprus, you aren't required to pay the
corporate taxes on that income in Britain.
There are hundreds of ways multinational corporations can be
legal bargain hunters. Any company with a global market for
their goods or services that fails to take advantage of legal
tax bargain hunting is paying too much in taxes. It's increasing
its odds of failure.
There are the costs of restructuring your corporation to take
advantage of lower tax obligations, but the first year's tax
savings usually offset those costs. In fact, if you are a
careful corporate bargain hunter, you can reduce your staffing
costs by enough money to offset your corporate restructuring
costs within one year. All the giants of American industry have
taken this path. If your company qualifies, you should follow
their example.
Investors can be tax bargain hunters as well. Americans should
put the maximum allowed amount in tax deferral programs, like
the 401k. Plus, your employer contributes some of the money to
this saving plan. It's certainly possible to invest overseas
without incurring a national tax obligation. Even during the
height of the Cultural Revolution in the People's Republic of
China, tens of millions of dollars flowed into the Hong Kong
banks from the mainland. It's estimate that middle-class
investors seeking to preserve their wealth in uncertain times
own over 90% of the money held in banks in low tax
jurisdictions. For most middle-aged members of the middle-class
in the 21st Century the axiom is: "Be a global bargain hunter or
die broke." The current economic bubble is certain to burst in
the next few years.
The Global Village has greater financial risks for corporations
and individuals. There is very little effective regulation.
However, few governments seem very committed to protecting their
corporations and citizens from the hordes of swindlers that
exist everywhere. The Global Village offers far greater rewards
to those who enter it cautiously. Isn't it time that you or your
company seriously considers the risks and rewards of operating
globally? If you fail to globalize, your family won't survive
into the 22nd Century.