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Corporate perversion

The latest gambit by American corporations to lower their taxes even more is to take advantage of what is known as ‘corporate inversion’. The way it works is for a big US company to buy a small company in a country that has favorable tax laws, Ireland being the current favored nation. They then ‘invert’ the relationship, claiming that the foreign company is the parent one while the US one is the subsidiary, even though nothing else has changed. This enables them to pay the lower taxes of the other nation while enjoying all the benefits of being in the US.

Once again, this reveals who are the moochers taking advantage of the system. WalMartgreen was the latest corporation considering doing this but they have apparently backed off, maybe because of the bad publicity this practice has garnered.

Actually, I have felt for some time that we should get rid of corporate taxes altogether because those taxes can be gamed much more easily than personal income taxes. More importantly, messing around with corporate tax rates is the main activity of lobbyists for businesses and the source of much of the money that business give politicians and that is corrupting the political system.

Eliminating corporate taxes would mean that corporations would get a boost in profits that would translate into more money for their executives and shareholders, as well as (hopefully) lower prices for consumers. The government could make up the loss in revenue by increasing personal income tax rates, especially at the higher income levels, to make up the difference.

The Daily Show and The Colbert Report did pieces on this phenomenon.

(These clips aired on July 30, 2014. To get suggestions on how to view clips of The Daily Show and The Colbert Report outside the US, please see this earlier post. If the videos autoplay, please see here for a diagnosis and possible solutions.)

Comments

  1. badgersdaughter says

    I was laid off by the multinational corporation I used to work for, and moved to Ireland with my Irish-citizen husband. Shortly thereafter, I heard they were reincorporating in Ireland. Hooray, I thought, I’d better get my resume/CV in to HR so they can get me back on board for the new location they were doubtless going to build.

    I never heard back from HR, but I imagined I could hear them laughing all the way from Texas. Oh, well. Too bad all those companies are not actually creating jobs in Ireland. We could sure use it.

  2. says

    Hooray, I thought, I’d better get my resume/CV in to HR so they can get me back on board for the new location they were doubtless going to build.

    And they’re going to be shocked – shocked I tell you – when they discover they have less than zero employee loyalty and all their customer databases keep leaking onto the black market.

  3. Bruce says

    Actually, the recent news was regarding Walgreens, not Walmart.
    But your post highlights a vital issue.

  4. Lassi Hippeläinen says

    “The government could make up the loss in revenue by increasing personal income tax rates, especially at the higher income levels, to make up the difference.”

    That plan would kill the middle class. There are too few people in the higher income levels to matter much; and they have several tricks to minimize their taxes.

  5. hyphenman says

    I’ve long been a proponent of abolishing all corporate taxes because they simply impose a cost on the corporation that is passed along to consumers. Instead, I would like to see an across the board tax on all payments to shareholders that would mirror the present intended corporate tax and therefore be neutral for government revenues (or possibly increase those revenues if the move closes a sufficient number of loopholes).

    There must be an advantage to doing business in the United States or else there would be no corporations here at all. Since low taxes cannot be the driving force behind that decision to stay, changing the tax structure will not cause corporations to move that were already contemplating a move for whatever reasons.

    I think we ignore what those advantages might be—supply lines, workforce, customer good will, &c.—because all we hear is the constant drone of taxes, taxes, taxes.

    Jeff Hess
    Have Coffee Will Write

  6. doublereed says

    The fact is that back in the day we actually taxed corporations, and nowadays all that burden has been pushed on personal incomes already. Which of course disproportionately puts the burden of taxes on poor and middle class people. Saying that we should ‘abolish corporate taxes’ is absurd and simply increases the kinds of shenanigans that the wealthy can use to not pay their fair share.

    I also don’t like your fatalism toward corporate taxes. It’s perfectly possible for us to actually regulate and close loopholes of corporate taxes. You speak of things like Tax Havens, but the reality is that there is only a small number of tax havens in the world and if we actually wanted to limit their use, we could. The only reason we don’t is because the wealthy and corporations control the political system right now.

    I mean read this paragraph again:

    Actually, I have felt for some time that we should get rid of corporate taxes altogether because those taxes can be gamed much more easily than personal income taxes. More importantly, messing around with corporate tax rates is the main activity of lobbyists for businesses and the source of much of the money that business give politicians and that is corrupting the political system.

    As far as I can see, what you’re saying is that we should just completely surrender to our corporate and lobbyist overlords and give them exactly what they’ve always wanted.

  7. hyphenman says

    @ doublereed No. 8

    I’m not for surrendering to anyone. I simply want those who collect the the profit to pass along their fair share by paying directly through their income tax.

    As long as corporations can count any tax as a cost of doing business, they will pass that cost along to the consumer.

    Let me use a simple model. Most, if not all renters (and the people who own their homes, but no rental properties), falsely believe that renters do not pay property tax. That, of course, is pure bupkis. Of course renters pay all the property taxes on the property they rent; the property owner simply factors that tax into the rent and increases the rent accordingly. Corporations, to the extent that their product exhibits sufficient price elasticity, follow exactly the same practice. In effect, corporations pay zero taxes, they just collect the appropriate tax from their customers, much the same way a retailer collects sales tax, and passes the money along to the appropriate government entity.

    Jeff

  8. doublereed says

    I think the most important number in my link that I posted is that in 1955, 27.3% of our federal revenue came from corporations. That’s been reduced down to 8.9%.

    In fact, back in those days, corporations put in $1.50 for every $1.00 that people put into Federal revenue. Nowadays? $0.25 for every $1.00.

    Here’s a great link detailing the necessity of a corporate income tax.

  9. doublereed says

    @9 hypenman

    Not really. The price for the consumer is determined by the market, presumably (that’s especially true for homes and renting). The taxes would just come out of their profits. After all, in the words of Adam Smith: “Everything is worth what it’s purchaser will pay for it.”

    You can’t just raise costs arbitrarily like that because you must maintain the exact same profit margin as before. It just doesn’t make any sense. Sometimes, your profits go down, and raising the cost hurts you even more.

  10. doublereed says

    I mean, if a corporation thinks you’ll buy their product for $325 instead of $300, they’ll mark it as $325 regardless of whether they are taxed or not.

  11. Mano Singham says

    doublereed,

    There is a ton of stuff out there about how to eliminate corporate taxes without hurting the middle classes. Other than raising the marginal tax rates on higher incomes, one could institute a raise in the capital gains tax (even treat it as ordinary income) as well as impose a financial transactions tax. Even a tiny rate on the latter would help to reduce the kind of wild speculative behavior in the financial world while raising a lot of money. Those taxes would be levied on the very people who would benefit from the elimination of the corporate tax.

    The advantage of such taxes is that they area lot more straightforward which means that they are harder to finagle without doing something outright illegal.

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