Cooper shareholders back shift to Bermuda

Shareholders of Cooper Industries, one of Houston's largest manufacturing companies, voted 9-to-1 Tuesday to change its place of incorporation from Ohio to Bermuda.

With no remaining regulatory hurdles, Cooper expects to be a Bermuda company as soon as possible after the close of business May 21.

Cooper is one of several Houston companies reincorporating in Bermuda or the Cayman Islands, primarily to save on income taxes. It is a $4.2 billion-per-year company that makes electrical products, tools and hardware.

At the same time that companies are considering these island tax havens, Congress is looking at ways to discourage the trend. Bills have been introduced threatening to penalize the latecomers.

The most recent and controversial move involves Stanley Works of New Britain, Conn., which decided to revote the issue after unions and the state contested a narrow win.

In Cooper's case, it was an easy victory for management because Ohio law requires only a simple majority to pass.

Of the 93 million shares eligible to vote, 68.3 percent voted in favor while 6.3 percent voted against.

Thus 90.8 percent of the 69.9 million shares that were voted at Tuesday's special meeting were in favor, spokesman John Breed said. The lone dissent at the meeting here was from an investor who complained about having to pay capital gains tax on shares he bought long ago, which have appreciated in value.

Common shares of Cooper Industries will automatically be converted to shares of Cooper Industries Ltd., a parent holding company in Bermuda, upon completion of the reincorporation.

The Internal Revenue Service requires taxes be paid on the gains in such stock transactions, although it will not allow the taking of losses.

Cooper Industries estimates that reincorporating in Bermuda will add $55 million per year to cash flow and 58 cents per share to annual earnings.

Its stock gained 85 cents per share Tuesday to close at $43.45, bringing the gain for the year to date to 24 percent.

Because the United States taxes companies based on place of incorporation rather than the source of income, companies such as Cooper are at a competitive disadvantage, said Chairman, President and Chief Executive Officer H. John Riley Jr.

Foreign competitors are gobbling up domestic companies. Riley cited an article in Congressional Quarterly saying that from 1998 through 2000, 80 percent of all transactions of $300 million or more were foreign companies buying U.S. firms.

Houston companies have been particularly active in moving their places of incorporation, although this does not affect the headquarters location.

On May 1, Noble Drilling, a major offshore drilling contractor, became a Cayman Islands company after gaining 96 percent approval in a late April vote.

Noble said it needed to be able to compete with Transocean and GlobalSantaFe, both Houston companies that for some time have been incorporated in the Cayman Islands.

Nabors Industries, the largest land-based oil and gas driller, and Weatherford International, a major oil-field services company, both have scheduled June votes on reincorporating.

Veritas DGC of Houston is working to acquire Norwegian company Petroleum Geo-Services, which would result in a seismic industry giant that would be incorporated in the Cayman Islands.

This article shows once again, that Washington has not learned a thing about what is causing expatriation and how to reverse it. Notice the highlighted words and phrases.

discourage
penalize
The Internal Revenue Service requires taxes be paid on the gains in such stock transactions, although it will not allow the taking of losses.
...article in Congressional Quarterly saying that from 1998 through 2000, 80 percent of all transactions of $300 million or more were foreign companies buying U.S. firms.

Notice anything?

The words discourage and penalize are indicative of what is causing the problem. Over the years, politicians of both parties, in order to gain more power over the taxpayers, have passed law after oppressive law meant to discourage and penalize taxpayers (individuals and corporations) who do not obediently bend over for them, at their every whim. They have either forgotten, or never learned, that you catch a lot more flies with honey than with vinegar.

It is, in fact, this negative approach of our lawmakers that is actually driving individuals and companies to move more and more towards expatriation. History shows us that in a free market, laws that discourage and penalize investment behavior that they don't like almost never have the desired result. In fact, the only way that government can influence capital to their benefit, is to encourage and reward the behavior that they desire.

But, it gets worse. Not only are the laws passed in Washington meant to discourage and penalize, but they are very one-sided, as well, with the government getting all the benefits. As the above article pointed out, the Internal Revenue Service requires taxes be paid on the gains in such stock transactions, although it will not allow the taking of losses. That is just one of many laws that have been passed in Washington, that places financial requirements on profitable taxpayers, but leaves no provision for writing off valid losses.

But, worst of all, is the fact that the Washington lawmakers are aware of much of the problem. Notice that there was an article in [the] Congressional Quarterly saying that from 1998 through 2000, 80 percent of all transactions of $300 million or more were foreign companies buying U.S. firms. That's the official publication of Congress itself. In fact, this document proves that they do know that their own actions are making it impossible for US companies to compete. But, their lust for power won't allow them pass legislation that would replace all of the discouraging and penalizing laws with encouraging and rewarding laws, because that would mean giving up a large portion of the control that they have given themselves over taxpayers.

All of this adds up to an annual total of hundreds of companies either reincorporating offshore or moving their entire operation offshore, many more US companies being bought by their more profitable foreign competitors and roughly 100,000 of America's wealthiest individual taxpayers taking all of their wealth and leaving.

Actually, despite the liberal spin that is going around the media, those companies that are reincorporating offshore are helping to keep matters from getting any worse, since the only real effect of their action is to negate a significant portion of the oppressive laws that are causing the problem.

But, for many companies and all individuals, reincorporating offshore is not an option. Some corporations that have reincorporated offshore have later found that even that was not enough and move their manufacturing offshore as well. Other corporations that are hit too hard, completely skip the reincorporation step and move their entire operation offshore, jobs and all.

But, the hardest hit are individuals, who have much fewer options than corporations. In fact, as a result of the Health Insurance Portability and Accountability Act of 1996, when they leave, they now must take all of their wealth with them, or risk it being confiscated by a greedy US government. That act presumes the authority of the US government to tax the income of expatriates for 10 years after they have renounced their US citizenship and become citizens of another country. In fact, rather than slow down capital flight, that law is believed to have caused a significant jump in expatriations in 1997.

For more on individual expatriation, see Tick-Tick-Tick - The Economy Bomb, on Action America. The many statistics quoted in that article are updated every year and links to source data provided. There are several other related articles on that site, including a link to the government's official Quarterly List of Known Expatriates, compiled by none other than - you guessed it - the IRS. Tell me they're not in a panic.

The answer is not more laws to discourage and penalize taxpayers, but the repeal of those laws and the passage of laws meant to encourage and reward the behavior that they desire. In fact, the one option that is currently on the table that would not only stop capital flight cold, but actually reverse it, is the National Retail Sales Tax (NRST). But, even with massive public support, getting it passed will probably take the political equivalent of dragging our elected representatives, kicking and screaming, into their respective houses to vote on it, since it would mean giving up the biggest bludgeon that they hold over our heads - the IRS.

But, if we fail to pass the NRST soon, expatriation and capital flight will continue until there are no longer enough wealthy individuals in the country to pay for even the Constitutionally mandated functions of government, let alone the numerous social programs. When that happens, if will literally be all over but the crying.

The press is running with this story now and these stories will only convince even more of the wealthy to flee, before it's too late.

The NRST. The time is now. With all the media attention tomorrow may indeed be too late.

Here is an unrelated side note for fans of Action America.

Last month, Action America took over 154,000 hits. Our previous high month was 96,000. This month we are already over 100,000 hits again.

Many thanks to all of you who visited Action America and helped push those numbers up that high.

John Gaver
Publisher
Action America
http://www.ActionAmerica.org/

I hope this trend continues. I hope that countries around the planet continue discovering that free markets are the way, and begin sucking the wealth out of this country. Perhaps only in this way will the elite be forced loosen the yoke on their slaves.

About five years ago, when I started looking at this problem, I thought that it could not get much worse without the government being forced to take action. It was at about that time that I set the criteria that established my personal threshold for leaving. At that time, the criteria that I established for leaving seemed completely absurd, since it assumed that our lawmakers would have to be completely inept in order for things to ever get that bad. It was essentially unthinkable that conditions in the United States would ever come anywhere close to getting so bad that it would trigger my exit strategy.

Today, I find myself wondering just how much longer I will be able to remain here.

I like your idea. But, I think that it's a little overly optimistic. You give our elected officials way too much credit. After watching and reporting on this exodus for years, I would no longer be surprised if, in a few years, the US government were to suspended the Constitution and declare marshall law, in order to preserve what little power they have left. Granted, it is possible that a slight majority in Congress might actually develop a sudden case of patriotism and repeal all of the oppressive laws before it's too late and as unlikely as it sounds, we might even pressure Dubya into signing such legislation. But, I wouldn't hold my breath if I were you.

After all, we are talking about Washington here.

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