I actually don’t think corporate inversions are bad. There are lots of things corporations do which are bad, and we chronicle them here all the time. Working the system for subsidies. Working the system to gain inside contracts. Gaming the system to shut out competitors. Buying politicians. And a million other things. But inversions in principal are not bad. Of course a corporation is going to want to minimize its tax outlay. People do. If I was a shareholder of a company I would expect that company leadership would do the inversion thing if it made sense. I would EXPECT them to. If a leadership team wasn’t interested in reducing its tax bill I sure as heck don’t want stock in their company.
But why do inversions occur? Simply because the USA is out of step with the rest of the world on corporate taxes. We have the highest rates in the world – though there are many ways to reduce a company’s tax liability so that the realized tax rate is lower – to be fair. But they are still too high. And our president doesn’t want to address cutting corporate taxes because it looks bad for him politically. If there is anything Obama can work with this congress on it is reducing corporate taxes. But he refuses even though it would be good for the economy and would reduce the number of inversions.
So blame Obama. Blame Congress (if need be). But don’t blame the companies for just doing what is right for the companies and the owners of the companies. Make companies want to stay in the USA. Bring the corporate tax code into the 20th Century. Then there will be fewer inversions.
But is that what some politicians really want?
(From International Liberty)
The issue is very simple. The United States has a very unfriendly and anti-competitive tax system. So it’s very much in the interest of multinational companies to figure out some way of switching their legal domicile to a jurisdiction with better tax law. There are two things to understand.
First, the United States has the world’s highest corporate tax rate, which undermines job creation and competitiveness in America, regardless of whether there are inversions.
Second, the United States has the most punitive “worldwide” tax system, meaning the IRS gets to tax American-domiciled companies on income that is earned (and already subject to tax) in other nations.
Unfortunately, the White House has no desire to address these problems.
This means American companies that compete in global markets are in an untenable position. If they’re passive, they’ll lose market share and be less able to compete.