Economic Nexus and FDI

Economic Nexus and FDI

DQ1.

According to “2. Foreign Direct Investment and Foreign Portfolio Investment: Theory,” 2008). Nexus, also known in some quarters as “sufficient physical presence’, is a legal term that relays the requirements for organizations carrying out business in a state to collect and pay tax on the total to the state in which they have a physical presence. Before the rise of commerce due to technological advancement, nexus was a straightforward concept that required organizations to have a physical address. Online retailing has compelled the state government to come up with new innovative ways to collect sales and income taxes from companies that conduct business virtually.  To circumvent the shortcomings of the traditional approach to nexus, many states are embracing the ‘economic nexus’, which emphasizes financial dealings in a given state above physical presence.

My home State, South Carolina, should enact an economic nexus threshold that omits companies who do very little business in their home state from taxation. This will reduce the burden on small business entities. Many small business entities face an uphill task in ensuring tax compliance owing to the large number of states they have to remit taxes in, a myriad of tax rates to keep straight, various tax policies to monitor, and numerous tax deadlines to meet. In many instances, many SMEs are forced to hire accountants and other tax experts, and this requires substantial spending. In most scenarios, such businesses, especially e-commerce startups, ultimately run out of business.

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If South Carolina enacts the Economic nexus threshold, it will be able to reduce the burden on consumers as in most scenarios SMEs who manage to work at such an environment raise prices of goods and services to help cover the increased cost of doing business. The Nexus will also reduce instances of monopoly by bigger organizations.

DQ 2

Glass & Saggi (2014) define Foreign direct investment (FDI) as an investment made by a company or individual in one country in business interests in another country, which may be in the form of establishing new business operations or acquiring existing business assets.  The United States remains one of the most attractive venues for foreign capital. Establishing tax policies, such as the 50% tax rate for higher earners, as established by the Gordon Brown government, is most likely to have a negative impact on the US economy by driving away foreign capital.

According to research finding by (Bosanquet, 2009) around 6.1 million USA citizens are employed by US affiliates of major companies as of 2017. Enacting such policies in the US will lead to less FDI, ultimately leading to high unemployment rates and a significant drop in consumer spending, which will affect businesses, leading to a likely recession. The effect of foreign Capital goes beyond creating employment opportunities. International corporations help drive innovation, enhance globalization, and create new creative ways of enhancing productivity. From the above discussion, when there is an insufficient money supply, high rates of unemployment, and a majority of workers with low wages tend to increase savings and reduce consumer spending. This drop in demand for goods and services curtails the growth of companies, which in turn leads to increased losses in non-recession businesses, ending in an ailing economy unable to settle its national debts.

References

Foreign Direct Investment and Foreign Portfolio Investment: Theory. (2008). Foreign Direct Investment. https://doi.org/10.1515/9781400829248-005

Bosanquet, N. (2009). III TAX-BASED INCOME POLICIES. Oxford Bulletin of Economics and Statistics, 45(1), 33-49. https://doi.org/10.1111/j.1468-0084.1983.mp45001003.x

Glass, A. J., & Saggi, K. (2014). Coordination of tax policies toward inward foreign direct investment. International Journal of Economic Theory, 10(1), 91-106. doi:10.1111/ijet.12029

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DQ#1
Review the following article: Nellen, A. (2008). Nexus for sales and use taxes. Journal of Accountancy, 206(4), 36-36.

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Consider a possible situation where Nexus could be used in your state. If you live in a state where there are no state income taxes, then approach this discussion as if you lived and worked in an adjacent state that does have an income tax.

For discussion: Compare the needs of the state with the tax goals of a taxpayer. Assess how this possible situation could impact business. What are the outcomes?

DQ#2
Review the following article: The real windfall. (2009). Economist, 393(8662), 17-18. Gale Document Number: GALE|A214621347

“The article presents the author’s thoughts regarding the problems for the taxpayers of Great Britain if British Prime Minister Gordon Brown drives away international capital from London, England. The efforts of Brown’s administration to punish the wealthy for the economic problems of the 2008-2009 recession are discussed” (“The real windfall,” 2009).

For discussion: Consider a similar possibility in the U.S. Congress. How could this affect the U.S. recession and the ability to pay down the national debt?

NOTE: Discussions are graded based on the requirements posted in the syllabus.