“Going Galt” or seeking a “Galt’s Gulch” are terms that originated from the Ayn Rand’s book, Atlas Shrugged. The terms have come to mean producers, either companies or individuals, flee the over bearing taxes and regulations that government places on them and go to places where taxes and regulations are less onerous, where they can operate and produce in a more “free market” environment. It is, in effect, a way to starve the Leviathan beast.
Many times I have read posts by good solid conservative/libertarian bloggers castigating companies for moving their factories to other countries and throwing Americans out of good paying jobs to take advantage of cheap labor; maybe even child labor. I do not subscribe to that line of thought. American companies are at a severe competitive disadvantage due to the very tax and regulatory burden in the US compared to most other countries. From my own personal experience, I can tell you the labor cost in a third world country is rarely an important factor in a company’s decision to set up shop in that country. You see some of the complex labor laws in those countries. The direct wages paid can be as little as a third of the company will payout in labor costs. More importantly, it typically take three, four, or even five times as many people to produce a given quantity of product as it would in the US. It is the lower tax and regulatory burden which is the main factor driving US companies to move their operations to other countries.
Zero Hedge has the story on the latest US corporation to “Go Galt”. The article doesn’t use that term, but that is what I call it. The company is Endo Health Solutions. Endo has found a way to “Go Galt” or to “starve the beast” without moving their operations off shore. They found a way to starve the beast by taking advantage of a loop-hole in America’s byzantine tax code.
The United States has the world’s highest corporate tax rate at 35% and Ireland the lowest? corporate tax rate at12.5%. So, what company wouldn’t rather pay 12.5% taxes on their profits than 35%. Their shareholders would be very upset if their management could pay far lower taxes and didn’t take advantage of it. But, a company can’t just change their address or set up a shell company in Ireland to buy the US company. The IRS would tax them at 35% anyway. However, there is a loop-hole the tax code big enough to drive a large corporation through with ease. The tax code as written says that if the US company is less than 80% of a foreign “holding company” (shell company), then it will be treated as a foreign company. So, Endo set up a shell company in Ireland and had it buy a company in Canada and also buy Endo of the US. In this new Irish company, Endo is slightly less than 80%. Therefore Ireland will be able to tax Endo at 12.%%; but the IRS will not be able to tax Endo at 35%. Ireland wins. Endo shareholders win. Endo’s US employees still have their jobs. The IRS loses.
Now, the Endo management probably was not thinking about starving the beast when they made their decision. The were thinking about their shareholders and, of course, their bonuses. That’s okay by me. They are starving the beast and they are “Going Galt” if they realize it or not. I say more power to them! I hope they set a trend and more US companies decide to “Go Galt” in the same way. Maybe if enough US corporations followed suit, the idiots in Washington would wake up and lower the tax rate on US corporations and roll back some of the stupid regulatory burden and bring back jobs and prosperity to America. I won’t hold my breath, but it is a nice thought.
Well, that’s what I’m thinking. What are your thoughts?