Friday, July 18, 2008

Taxes may not be decisive, but are never irrelevant

This week's decision of MillerCoors to headquarter their join venture in Chicago prompted folks to assume the ideological battlements. The JV said taxes weren't a factor although they are pocketing millions in tax abatements. Some bloggers argure that this supports the notion that taxes are not such a big deal when it comes to business decision-making. I was struck by this quotation attributed to former Treasury Secretary Paul O'Neill:

‘As a businessman I never made an investment decision based on the tax code. If you give money away I will take it, but good business people don’t do things because of inducements.”

The blogger (Michael Rosen) doesn't provide a link but the statement is taken out of context or is flatly wrong. Obviously so.

In my corporate life, I was involved in lots of decisions about whether to buy a company or open a facility. You always take the tax code into account. Failure to do so would be negligent. Business people always project expected financial results through pro forma financial statements and, when doing so, you would be an idiot to ignore any nontrivial costs, of which taxes are one. Incentives affect these pro formas and can turn an unprofitable project into a profitable one or make one option more profitable than another. I have seen deals structured to minimize tax liability. I have seen deals go away because of taxes. I have seen deals turn on the availability of incentives. I never - ever - saw a deal in which taxes were not tsken into account.

Of course, they are not the only factor but, all else equal, people do prefer to pay less, rather than more, tax.


Anonymous said...

Rosen conveniently omitted the $20 million in city and state inducements offered to the company to secure the relocation.

"Beer tab too high for jobs?",0,4213102.story

Dad29 said...

It is also fair to say that taxes are not the FIRST consideration for most businesses.

Workforce, distribution considerations, market share...