Monday, July 28, 2014

Billions In Taxes Lost as U.S. Corporations Park Money or Leave The U.S.

There is a little reported fact that a number of  large U.S. companies are leaving the U.S. to be headquartered in other, more tax-favorable countries. The trend is increasing with 5 major companies announcing their plans to relocate in just this year so far: Chiquita, Abbvie, Medtronic, Walgreens and Mylan.

The mechanism by which they are doing this is called corporate inversion; whereby, a foreign company, with as little as 20% ownership in a U.S. company, is allowed to relocate that U.S. company's headquarters to their country of origin.

In doing so, the U.S. company being relocated would no longer be subject to the U.S.'s 35% corporate tax on all it's corporate profits, both foreign and domestic; and, the highest among all industrialized countries.  Further, redomiciled companies could then avoid the absolutely stupid U.S. tax policy of   double taxing any foreign profits returned to the U.S. -- after foreign taxes had already been paid on those same profits.  We are are the only major industrialized country that does this, and, this stupidity has resulted in nearly $2 trillion of accumulated profits just sitting overseas with that money not benefiting us one iota.  Money, that could very well have been brought back to this country to expand manufacturing facilities and create jobs. Or, to lower prices. Then, too, to simply retire corporate debt; which, in turn, would take away a major tax deduction that corporations use every day to lower their overall taxable profits. Or, money that could be paid out as a dividend and thus injecting it into the economy without one taxpayer dollar being involved.

Now, the Obama Administration doesn't like corporate inversion.  They refer to it as a lack of "economic patriotism"; as if corporations, and all of us, only exist patriotically to pay taxes to the U.S. government.  In this country, only half of the population pays any taxes.  Are those who don't pay taxes, also, economically unpatriotic?

The simple fact is that our current tax laws are driving companies offshore; and, talk by Obama to kill any remaining corporate tax benefits -- which he calls loopholes -- is only going to aggravate the situation.  That is probably why the trend of inversion has accelerated under Obama.  And, what is Obama's solution to the problem and a potential 10 year loss of  $20 billion in taxes?  Certainly not to fix the corporate tax laws.  Instead, he wants Congress to act immediately to raise the inversion ownership requirement by overseas companies from 20% to 50%.  This, too, is stupid.  Remember that $2 trillion parked out there?  Well, a smart U.S. corporation could just have a foreign buyer take on more debt to satisfy the 50% ownership requirement. Once, the deal is done, that excess debt could be retired with the money that is sitting offshore and the total combined company would still be better off than remaining domiciled in the U.S. and paying high taxes.

Right now, Obama is using corporate inversion as another campaign tool by demonizing those companies who are moving out of this country.  Calling them deserters and unpatriotic.  He knows that, if the Republicans don't act by the Fall elections to raise the inversion ownership requirement to 50%, he can use that fact to hammer the GOP for being too "in bed" with big business.  That's exactly what he did in Los Angeles last week in another one of his campaign style rallies at a technical training school. Of course, he also knows that there isn't enough Congressional session time to bring the "50%" rule to passage; given their current preoccupation with all the other crises that keep occurring under Obama's stewardship. Crises that he seems to have no time for while he's out campaigning against corporate inversion. 


Corporate Inversion:

Jack Lew pushes Congress to crack down on tax ‘inversions’:

US could lose $20B from corporate tax inversions:

U.S. Firms Move Abroad to Cut Taxes:

GE, Pfizer, Microsoft, Apple And Other Major US Corporations Are Parking More Cash Abroad To Avoid Paying Taxes:

Cash Abroad Rises by $206 Billion as Apple to IBM Avoid Tax:

Los Angeles Rally: Obama seizes on 'corporate deserters' of U.S.:

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