Saturday, August 2, 2014

Could the U.S. Become a Tax Haven?

To save the corporate income tax, we might first have to kill it. 

Cat and mouse. 

If tax dodging were an Olympic sport, corporate America would be a front-runner for the gold. The latest reminder comes thanks to the furor in Washington over “inversions,” tricky maneuvers whereby U.S. companies reincorporate themselves overseas and flee the IRS by merging with a smaller foreign business. These deals aren’t new, but their pace has picked up—at the moment, the pharmacy chain Walgreens is considering making itself a Swiss citizen for tax purposes, and Mylan pharmaceuticals moved to change its corporate tax address from Pennsylvania to the Netherlands, inspiring a memorable Jon Stewart rant. 

The whole issue has President Obama railing against “corporate deserters” while in the Washington Post, Treasury Secretary Jack Lew has demanded that Congress close the tax loopholes that make inversions possible. Of course, that’s exactly what the government tried to do in 2004, when President Bush signed a bill meant to clamp down on the rash of inversion deals that began during the 1990s. Obviously, the job wasn’t finished.

To borrow a phrase from radio legend John Peel, the debate over corporate taxes in the U.S. is always different, always the same. It’s always different because lawyers and accounting firms are paid handsomely to come up with new and novel ways to skirt the IRS. (Apple is particularly creative in this regard.) It’s always the same because lawmakers keep struggling over a single fundamental problem. It’s not that the U.S. has the highest official corporate tax rates in the developed world—that fact may not help matters, but we’re not the only nation that struggles with tax avoidance. The problem is rather that the corporate income tax is a product of the early 20th century, a time before globalization and before havens, such as Ireland and the Cayman Islands, made it relatively easy for companies to minimize their government tab. Fixing that will require international cooperation that may well never materialize.

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