Tags: Furchtgott-Roth | tax | inversion | company

Furchtgott-Roth: Tax Inversions Help America Compete Against the World

By    |   Monday, 11 August 2014 02:56 PM

Tax inversions, in which American companies relocate their legal domicile overseas to escape high U.S. taxes, actually help the U.S. economy instead of hurting it, according to Diana Furchtgott-Roth, chief economist for the U.S. Department of Labor under President George W. Bush.

Furchtgott-Roth, a senior fellow at the Manhattan Institute, said the true facts about tax inversions have gotten lost since President Obama recently railed against them as being "unpatriotic."

"They raise profits for U.S. shareholders, who can channel more funds back to America. Companies that locate overseas should be praised for making the right decision, not scolded for being un-American," Furchtgott-Roth wrote on the Manhattan Institute's blog.

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"What is more American than doing what is best for your company?"

She noted that U.S.-based multinationals face a federal corporate tax rate of 35 percent on worldwide income, not just income generated in the United States. That means if a company wanted to bring $100 million back to the United States to build a factory here, they would have to give the government $35 million first, leaving a lot less to build the factory and hire workers.

By contrast, she added, if a U.S. company that had moved its tax domicile to Ireland wanted to invest $100 million to build a factory in the United States, it would be able to use the entire $100 million to do so.

Furchtgott-Roth gave a pair of examples to prove her point.

"Since inverting to Panama in 1982, McDermott International has created American jobs by constructing pipelines and oil platforms in the Gulf of Mexico and across the country. Panama's lower corporate income tax rate, 25 percent, leaves McDermott with more funds to hire the workers to complete those projects.

"Tax inversions can result in a greater flow of income into the United States. A company such as Medtronic, which is in the process of inverting, can expand its American operations at lower cost than can its competitors."

She noted the U.S. charges the highest corporate tax rate in the developed world, which has an average tax rate of 24 percent. Some countries, such as Ireland, have corporate rates that are closer to half of that, which means the United States is in an uncompetitive position.

"It is impossible to start a fire in a crowded theater — i.e., levy a substantially higher tax than competitors — and then lock the doors. Moves to punish American companies from inverting will only cause them to break down the doors and leave more rapidly."

Since 2012, an estimated 15 corporate inversions have occurred in the U.S., with another half-dozen deals in the works. Furchtgott-Roth said it's no coincidence that some of the more recent ones are medical companies that have the extra burden of a new 2.3 percent excise tax to pay for Obamacare. By inverting, those companies can escape that additional regulatory fee.

"The only way to stop inversions is to reform the tax code so U.S. multinationals have the same advantages as foreign ones. Until then, we should praise those corporations that seek to operate at lower costs, not pillory them," she wrote.

The Obama administration is looking for ways to bypass Congress and act on its own to stop tax benefits for U.S. companies that relocate overseas to lower their tax bills, The New York Times reported.

"The administration can't simply rewrite the tax code to serve its policy goals. That's the job of Congress, The Denver Post's editorial board wrote.

"Companies will continue looking at a lucrative change of location until lawmakers pass genuine reform of the nation's corporate tax code."

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Tax inversions, in which American companies relocate their legal domicile overseas to escape high U.S. taxes, actually help the U.S. economy instead of hurting it, according to Diana Furchtgott-Roth, chief economist for the U.S. Department of Labor under President George W. Bush.
Furchtgott-Roth, tax, inversion, company
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2014-56-11
Monday, 11 August 2014 02:56 PM
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