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It’s probably foolish to hope all the attention currently focused on “tax inversions” – the paper practice of headquartering U.S. companies overseas to cut tax expenses – will lead to meaningful corporate tax reforms. It’s much easier and politically expedient for the Obama administration to simply denounce corporations as unpatriotic scofflaws.
“I don’t care if it’s legal” to move a corporation overseas, President Obama said in Los Angeles during his recent three-day fundraising swing. “It’s wrong.”
That’s a darling election-season sound bite to excite anti-corporate liberals and cajole Democratic lawmakers into pushing for a ban on corporate tax inversions. Unfortunately, it draws attention away from what is really wrong: America’s outdated and punitive corporate tax code.
It’s our 30-year-old tax laws that make more than a dozen U.S. multinational companies – such as banana distributor Chiquita Brands and medical-device maker Medtronic – want to go through gymnastic contortions to broker inversion deals. Drugstore chain Walgreens wouldn’t be proposing a similar deal if the United States didn’t have the highest tax rate in the developed world – an effective federal-state rate of 40 percent.
Indeed, of the 32 developed countries in the Organisation for Economic Co-operation and Development, all but the United States have reduced corporate rates during the past two decades. The U.S. rate has been unchanged since the last tax-code overhaul in 1986.
Even with special-interest loopholes and generous deductions, the United States still taxes corporations higher than Canada, China and the United Kingdom. And America is one of only a scant few countries in the world where its citizens and corporations are subject to taxes on income earned abroad.
Passing a law that simply blocks inversions, as Treasury Secretary Jack Lew has called upon Congress to do, is a finger-in-the-dike exercise. Corporations eventually would find a loophole to exploit or, worse, eschew paper mergers altogether for bona fide ones that would lead to more jobs and investment going overseas.
The Obama administration is well aware that an inversion ban is a nonstarter in a divided Congress. But it’s not going to pass up an opportunity to throw red meat to its Big Labor voting bloc by characterizing tax relief-seeking companies as unpatriotic.
Republicans are wise to oppose any quick-fix inversion ban that doesn’t include comprehensive corporate tax reforms. In the long term, one without the other is meaningless.
There is nothing inherently wrong with cross-border commerce. America’s economy is strengthened when our companies do well overseas and when foreign companies make investments in the United States.
Let’s make the United States the kind of place where an American company wants to stay.
-The Augusta (Georgia) Chronicle