Why so many American companies are abandoning America
The Week Staff
February 7, 2016
The smartest insight and analysis, from all perspectives, rounded up from around the web:
Yet another major U.S. company is "renouncing its corporate citizenship," said Andrew Ross Sorkin at The New York Times. Auto parts supplier Johnson Controls announced last month it is merging with Ireland-based Tyco International to take advantage of Dublin's lower corporate tax rate. The fact that Johnson Controls is joining a "tidal wave of corporate migrants" is all the more galling because the company has been on the receiving end of plenty of U.S. largesse, including at least $149 million in tax breaks between 1992 and 2009 from Michigan alone — and, indirectly, the $80 billion auto bailout. Given that history, it's tempting "to cue the national anthem and argue about the need for corporate patriotism," but shaming companies into staying isn't going to be effective. At least a dozen other so-called inversion deals are currently in the works. It's high time we figured out how to make it "more attractive for American companies to be American companies."
"The solution isn't complicated," said Ike Brannon in Real Clear Markets. Our corporate tax rate is among the highest in the world — nearly 40 percent when state and local taxes are included. And unlike most other countries, the U.S. taxes every dollar earned, whether the profits are made at home or overseas. So, if a firm earns money in, say, Germany, it has to pay German taxes, and then U.S. taxes when it brings that cash home, a double penalty that makes U.S. businesses less competitive. To avoid this double whammy, American companies are sitting on $2 trillion in profits earned overseas — money that could be invested in the U.S.
Most proposed reforms aimed at making inversions less attractive would only "make a bad system worse," said Kimberly Clausing at Fortune. Some U.S. lawmakers have proposed a one-time "windfall tax break" on the foreign profits stashed overseas. But that approach essentially rewards companies for "gaming" the system, and previous tax holidays have "led only to share repurchases and dividend issues, not to new jobs or investments in the United States." What's more, corporations already "achieve single-digit effective-tax rates" in case after case, thanks to a legion of lawyers and a tax code that's riddled with loopholes. Getting rid of the tax on foreign income would essentially treat every U.S. company like a firm that has already inverted.
"Good luck" trying to solve our corporate-tax conundrum, said Stephen Mihm at Bloomberg View. This "arcane and inefficient system" has "resisted all efforts at improvement" for much of our country's history, going back to the Civil War, when the first corporate income tax was passed. "The biggest problem may be that policy makers have taken a piecemeal approach" to reforms for decades and have rarely waded into the thorny issue of why we treat corporations as "artificial persons" separate from "the flesh-and-blood shareholders who own them." Regardless, there's little reason to believe that the next White House occupant can change a system that has long been "protected from reform by its complexity and an industry of tax lawyers, accountants, and lobbyists who thrive on gaming it."
http://theweek.com/articles/603548/why-many-american-companies-are-abandoning-america
