High US tax rates causing US companies to flee country

I’m sure US companies will be coming home to America to provide more jobs with the help of Obamacare and all its advantages; lower “insurance” premiums, equality of treatment of all individuals and companies and entities, increased privacy and security, more doctors and hospitals and healthcare providers. . . NOT.

Economist John Lott,Phd. explains here:

How high US tax rates are causing companies to flee the country

There is a growing trend of US companies buying foreign companies and reincorporating overseas so a to reduce their tax burden.

The recent merger of California chip maker Applied Materials and Japanese company Tokyo Electron saved a lot of money by reincorporating in the Netherlands. From the New York Times:

. . . The merged company will save millions of dollars a year by moving — not to one side of the Pacific or the other, but by reincorporating in the Netherlands.

When Applied Materials announced its deal for Tokyo Electron, it said that its effective tax rate would drop to 17 percent from 22 percent as a result. For a company that had nearly $2 billion in profit in 2011, that amounts to savings of about $100 million a year.

Last year, the Eaton Corporation, a power management company from Cleveland, acquired Cooper Industries, based in Ireland, for $13 billion, and reincorporated there. The company expects to save $160 million a year as a result of the move.

In July, Omnicom, the large New York advertising group, agreed to merge with Publicis Groupe, its French rival, in a $35 billion deal. The new company will be based in the Netherlands, resulting in savings of about $80 million a year.

Also in July, Perrigo, a pharmaceutical company from Allegan, Mich., said it would acquire Elan, an Irish drug company, for $6.7 billion. Perrigo will also reincorporate in Ireland, bringing its effective tax rate to 17 percent from 30 percent, and saving the company an estimated $150 million a year, much of it in taxes.

Ireland’s 12.5 percent corporate tax rate is a big draw for some companies. Earlier in the year, Actavis, based in Parsippany, N.J., bought Warner Chilcott, a drug maker with headquarters in Dublin, and said it would reincorporate in Ireland, leading to an estimated $150 million in savings over two years.

“These companies are doing the math and seeing they can save a couple hundred million dollars by doing this,” said Martin A. Sullivan, chief economist at Tax Analysts, a nonprofit group that publishes analysis about global taxes.

But the small fortunes saved by inverted companies amounts to billions in revenue not collected by Washington. . . .

The article has other examples:

Tyco went to Bermuda in 1997 to lower its tax bill. A year later, Fruit of the Loom moved to the Cayman Islands. And in 2001, Ingersoll-Rand reincorporated in Bermuda. . . .

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10 thoughts on “High US tax rates causing US companies to flee country

  1. No worries, Texas. I hear that Obama is working up a plan to take all the millions of dollars that were saved on green energy and convert them into Obamamiles, so that US workers can fly at a low cost to the Netherlands and Ireland for work. Now don’t you hear that Guiness callin yer name?

  2. Having read this, I’m a bit confused concerning the objective of the post. I see a couple of people shared it on their blogs as well. I checked for comments on the other blogs too, but saw nothing to clear up my confusion. Is this a post about “Obamacare” or about corporate tax rates? It very well could be about both, since I suspect the high cost of employer subsidized health insurance is as harmful to many businesses as the corporate tax.

    I recall both presidential candidates agreeing, in 2012, that the corporate tax rate is too high. The difference, at the time, appeared to be only on how much the rate should be reduced. Since that time, tax reform is not being discussed in the political arena. Like most every other issues, any real discussion is precluded by partisan gamesmanship or ignored completely, because the electorate is so easily manipulated from day to day, week to week, month to month…

    Possibly the biggest distraction has been the implementation of “Obamacare”, and to what end?

    • John/Steve: Corporate taxes have never been about taxes on corporations, but they are inflationary taxes on consumers and taxes on the capital returns received by investors, who are then taxed a second time (sometimes a third time) as individuals. Every tax levied and paid in America, including the various taxes, fees and penalties of Obamacare, represent a removal of capital from the productive private sector into the unproductive government sector and often redistribution from working, productive Americans to unemployed and unproductive Americans. The fact that US companies pay the highest corporate taxes in the world means that American consumers pay more for everything we buy or use, since American citizens are the only source of funds for taxation, direct or indirect. Obamacare is essentially a wealth transfer program, taking money from those paying for their insurance coverage and giving it to those who will now receive coverage for “free,” that is actually being paid for by their fellow citizens whose premiums are increasing while their healthcare now includes higher deductibles and co-pays. Corporate income taxes should be zero, and any profits should be taxed as they are returned to the owners or investors. CDE

      • I agree Charles. There should be no corporate income tax. I have been saying so for some time. However, I would characterize tax as a removal of consumer purchasing power as opposed to a removal of productive capital. The corporate tax issue has been effectively exploited by the Republican Party as an excuse for chasing cheap labor rates around the world. Their greed is not really greed at all. It is merely an attempt to stay in business in a globally competitive environment where they are overtaxed and overregulated. What a bunch of baloney. lol

        The “wealth transfer” in the private insurance market has been going on for decades. “Obamacare” is a compromise to allow the insurers to continue to get their piece of the pie, and they are pretty smart guys and gals. They realize that even with their administrative fees capped, they will clean up as more and more people enroll.

        • Steve, I should have explained my synaptic leap more clearly.

          Charles hit the nail on the head. Thank you.

          French philosopher Frederic Bastiat explained the basic laws of economics in 1848. In “The Law”, Bastiat explained in layman’s terms anything government does, takes capital away from individuals, and thereby choice and liberty. Corporations do not pay any taxes.

          Corporate taxes are nefarious for they “hide” the true tax rates “the people” actually pay out of their own pocket.

          The corporation’s customers pay the hidden taxes through unnecessary higher prices, which can be considered a “hidden tax” which also raises the sales price upon which other taxes are calculated. Meanwhile the corporation’s shareholders are taxed at least 2x’s, once at the corporate level, and then again when they receive their dividend. Consequently taxing corporations results in at least double taxation, or more likely quadrupling or some higher multiple.

          Regulations and mandates by government requiring corporations to spend money not necessary to the production of the product or service are also burdens, or “taxes”.

          Obamacare is already causing corporations who compete in the global market place to scale back and or flee America, which also reduces the tax base, as fewer employers equals fewer employed paying fewer taxes.

          And all top of all the taxes? Now consider the lost increase in spending power that purchasers could have built through buying products instead of paying taxes. Spending is an exponential function increasing productivity just as taxation is an exponential function stealing from all levels of the economy.

          Those in leadership and government understand these basic concepts, and that they are destroying the people’s individual opportunities for accumulation for wealth.

          Everyone should be asking the question why does government want everyone to be poor?
          with his small book

  3. It is late, at least for me on a Sunday. So…corporations do not pay squat in taxes. Leaving? Re-incorporating? Immigration reform coupled with single payer system promises, keep what is left to pick off here. The rest is colored bubbles.

  4. As corporations compete for customers and investors simultaneously, I totally agree that the corporate tax is simply passed on to consumers. Concerning “Obamacare”, the best outcome would be for all businesses to stop subsidizing their employees’ healthcare. Instead of reducing employee hours to skirt the law, I would rather they drop their plans altogether. For “Obamacare” to have a chance of succeeding, universal coverage is required. If it fails, I’m afraid we are only a short ways from a single-payer system. “Obamacare” is designed to prevent this.

    I also agree tax a corporate tax results in double taxation. Only distribution to owners should be taxed, but I advocate taxing dividends as ordinary income. We can say that the answer is a reduction in spending, and I agree there is a lot of room for improvement, but I believe a more important component is broadening the tax base. That can occur by increasing the number of jobs, and the wages paid. Even if there were no reduction in real spending, the top 1% will pay a smaller percentage of the total bill when working folks are able to pick up a bigger share.

    What I see happening is this: Investors seek the highest returns by shipping jobs overseas and paying politicians to maintain preferential tax rates on investment income.

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