The Obama administration's high corporate tax rate is forcing businesses to relocate overseas, while accusing those who choose to do so of having a lack of "economic patriotism," says an opinion piece in Thursday's edition of The Wall Street Journal.
Earlier this week, Treasury Secretary Jack Lew sent a letter
to House Ways and Means Chairman Dave Camp, R-Mich., urging him to push for legislation to punish companies that opt out of paying what is the developed world's highest corporate tax rate.
"What we need as a nation is a new sense of economic patriotism," Lew said in the letter, which called for penalties and restrictions for businesses that relocate outside the United States.
Several U.S.-based companies are opting to merge with or acquire foreign companies so they can open overseas headquarters and avoid the United States' 35 percent corporate tax on income they earn overseas. State levies also push up the taxes on many such businesses to 40 percent, for a combined rate that is double the average for Europe and even more than triple the 12.5 percent rate being charged in Ireland.
CEOs are concluding that President Barack Obama is not serious about tax reform, the Journal reports.
"These executives have a fiduciary duty to their shareholders, and they can't cede a permanent tax advantage to their global competitors, so they decide to move," the paper reported.
Three major drug companies have announced plans for foreign inversion deals this year alone. They include Pfizer, whose attempt to purchase British drugmaker AstraZeneca was rejected earlier this year. This week, drug firms AbbVie and Mylan also announced foreign merger plans. In all, reports the Journal, 19 inversion deals have been announced since last year with 14 of them coming this year.
For Mylan, which wants to acquire generic drug businesses from Abbott Laboratories in the Netherlands, the tax savings is about 10 percent, enough of an incentive to relocate.
Lew's push to block such inversions will just have the effect of driving more such deals, The Journal claims. He doesn't understand that stopping inversions will make companies more vulnerable to foreign takeovers, as owners will serve shareholders by offering their businesses to sale to foreign firms with a lower tax rate.
Lew admits in his letter that the best way to address the situation is through business tax reform, but, says The Journal, the Obama administration has not engaged Congress on the matter, which has bipartisan interest.
"We've been down this road before, and we know companies will continue to do this as long as our tax rates remain the highest in the world," Lew said in his letter. "America cannot compete as long as our tax policy is so dysfunctional. Even the Secretary admits that tax reform is the right answer, so let's do it. Send me your plan."
The Journal predicts that Senate Majority Leader Harry Reid will rush a bill to the Senate floor on Lew's punishment plans, but notes Republicans should attack Democrats for supporting "the world's most punitive corporate tax rates."
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