US Politics: Tax Inversions are a result of Political Gridlock

[lokisnow]

continue:

http://www.vox.com/2014/7/28/5944263/corporate-tax-inversions-deserters-vs-economic-patriotism

Why are inversions surging now?

There are two main reasons. One is that low interest rates in the United States and Europe are making it cheaper for companies to buy each other than has normally been the case. That's leading to a lot of merger activities of all kinds. Since some tax inversions are side-effects of mergers undertaken for other reasons, anything that boosts merger activity will tend to boost inversions. And anything that makes it cheaper to pull off a merger encourages companies to look for more inversion opportunities.

The other, more important reason is political gridlock. As you can see in the Goldman Sachs' chart in question four, inversion surges have happened in the past. But previous waves of inversions have been halted by new anti-inversion legislation. Not only have those crackdowns halted inversions, but fear of crackdowns tends to halt inversions. Companies are reluctant to push the envelop in ways that are likely to prompt regulatory or legislative backlash. But as inversions began to make a comeback in the Obama years, no crackdown was forthcoming. And it doesn't take a multi-millionaire investment banker to tell you that these days congressional Republicans are in no mood to pass Obama-friendly legislation, especially legislation that would raise taxes. So companies are getting bolder and bolder with their inversion proposals. Now the White House finally is proposing anti-inversion legislation, but its odds of passage look dim for the same basic reason the odds of anything else passing look dim.

Basically, Ronald Reagan and George W. Bush and their respective Democrat and Republican congresses both passed anti-Tax Inversion legislation to prevent the sort of Burger King shenanigans that are currently going on.

But now for some odd reason doing the responsible goverance thing, the same thing that two of the last three republican presidents have done to protect American business interests, is somehow unacceptable to the house of representatives.

So mysterious...

[Commodore]

Rather than trying to stop a company from acting in its best interest, better to ask why the company wants to leave the US in the first place.

Always side with the party that isn't using a baseball bat to get their way.

[aceluby]

Rather than trying to stop a company from acting in its best interest, better to ask why the company wants to leave the US in the first place.

Always side with the party that isn't using a baseball bat to get their way.

For the same reasons they've done it in the past. To try to make more money at the expense of America and Americans.

Also, I'm not sure what the hell you're talking about regarding the baseball bat. Are you saying Republicans don't use force to get their way? Because that's laughable.

[hauberk]

Rather than trying to stop a company from acting in its best interest, better to ask why the company wants to leave the US in the first place.

Always side with the party that isn't using a baseball bat to get their way.

The baseball bat is there because there is a long stand history of corporations refusing to do what is proper unless there is someone there with a baseball bat. Shortcuts happen when the guy with the baseball bat isn't looking. That results in all kinds of fun things like illegal dumping, cigarette ads for kids, short cuts in medical trials, cars that explode when rear-ended and cars that spontaneously stop going because the ignition switch is a piece of garbage. Personally, I'm going side with the guy with the baseball bat over the guy that wants to slip away with my money/jobs/health and expect me to smile while I'm being screwed. When corporations begin to behave in a morally and ethically appropriate manner and consider the consequences of their actions on the communities/customers that their success was built upon, the guy with the baseball bat can retire.

It's pretty clear why they're doing it. They're doing it for the same reason that Market Basket wanted to change their corporate leadership and take larger dividends. It all comes down to corporate and shareholder greed. In this case, Burger King is going to do their thing and I'm going to do mine. When I need a poorly prepared fast food sandwich, I'll look to McDonalds or some other restaurant and, where I can, I'll happily direct copies of my receipts back to Burger King and be sure to let their vendors (Coke/Pepsi) and their media tie-ins know that they're on the list as well. Hopefully other people will do the same thing.

[daskool]

The baseball bat is there because there is a long stand history of corporations refusing to do what is proper unless there is someone there with a baseball bat. Shortcuts happen when the guy with the baseball bat isn't looking. That results in all kinds of fun things like illegal dumping, cigarette ads for kids, short cuts in medical trials, cars that explode when rear-ended and cars that spontaneously stop going because the ignition switch is a piece of garbage. Personally, I'm going side with the guy with the baseball bat over the guy that wants to slip away with my money/jobs/health and expect me to smile while I'm being screwed. When corporations begin to behave in a morally and ethically appropriate manner and consider the consequences of their actions on the communities/customers that their success was built upon, the guy with the baseball bat can retire.

It's pretty clear why they're doing it. They're doing it for the same reason that Market Basket wanted to change their corporate leadership and take larger dividends. It all comes down to corporate and shareholder greed. In this case, Burger King is going to do their thing and I'm going to do mine. When I need a poorly prepared fast food sandwich, I'll look to McDonalds or some other restaurant and, where I can, I'll happily direct copies of my receipts back to Burger King and be sure to let their vendors (Coke/Pepsi) and their media tie-ins know that they're on the list as well. Hopefully other people will do the same thing.

You be sure not to go anywhere near an i phone or use google search while you're at it. Jeez the left and it's faux appeal to nationalism. They took our jawbs!

[awesome possum]

Rather than trying to stop a company from acting in its best interest, better to ask why the company wants to leave the US in the first place.

Can you provide some examples of companies that leave the US because the US is hindering their growth or profits?

Because it seems to me that every single example we've seen of companies leaving the US/sheltering their money outside the US, is one of a company that is raking in profits and are performing these actions because they want to make more profit at the, as aceluby said, expense of America and Americans.

[hauberk]

You be sure not to go anywhere near an i phone or use google search while you're at it. Jeez the left and it's faux appeal to nationalism. They took our jawbs!

I'm only left if you're driving on the right shoulder.

I don't much care for off-shoring jobs of any kind. Tech manufacturing included. However, I've got no issue with a company shopping around for the best price possible for a part or service. My preference would be for them to not ship jobs off so that they can avoid reasonable work conditions, environmental restrictions and stuff like that. However, that's not what we're talking about. This is restructuring an entire company, under the auspices of a corporate merger/buyout in order to relocate the corporate holdings with the express purpose of sheltering money from taxes.

[The Fallen]

They took our jawbs!

Is this a good thing?

[Mudguard]

In the grand scheme of things, the lost tax revenues from a handful of companies undergoing tax inversions isn't that much. Even if we eliminate the tax inversion loophole, there are many other loopholes that are still available.

The bigger problem is the 2 trillion dollars of profits kept offshore. Rather than bringing this offshore money back into the US, companies are using it to purchase foreign companies and to invest in foreign infrastructure and R&D. This is all perfectly legal, and the current tax structure provides a strong incentive for companies to behave this way. The US would benefit greatly if this money was brought back into the US to develop our industries locally rather than being used for foreign development.

i'm not sure that Obama's proposal to block tax inversion would really do much to collect extra revenue. The companies undergoing tax inversion are already keeping foreign profits offshore, so they aren't paying taxes on this money anyway. By moving their tax domicile overseas, I think that they are able to bring the foreign profits back to the US without any additional taxation. To me, this situation is preferable to the current situation where the money is just kept offshore anyway.

The real source of the problem is that US corporate tax rate is among the highest in the developed world. That has to change if you want to fix these problems.

[The Fallen]

In the grand scheme of things, the lost tax revenues from a handful of companies undergoing tax inversions isn't that much. Even if we eliminate the tax inversion loophole, there are many other loopholes that are still available.

The bigger problem is the 2 trillion dollars of profits kept offshore. Rather than bringing this offshore money back into the US, companies are using it to purchase foreign companies and to invest in foreign infrastructure and R&D. This is all perfectly legal, and the current tax structure provides a strong incentive for companies to behave this way. The US would benefit greatly if this money was brought back into the US to develop our industries locally rather than being used for foreign development.

i'm not sure that Obama's proposal to block tax inversion would really do much to collect extra revenue. The companies undergoing tax inversion are already keeping foreign profits offshore, so they aren't paying taxes on this money anyway. By moving their tax domicile overseas, I think that they are able to bring the foreign profits back to the US without any additional taxation. To me, this situation is preferable to the current situation where the money is just kept offshore anyway.

The real source of the problem is that US corporate tax rate is among the highest in the developed world. That has to change if you want to fix these problems.

You've told us why these companies do it. But what exactly is the problem with these companies investing in infrastructure and R&D here in the States? Will they go out of business if they were to do this?

ETA: clarity.

[Mudguard]

You've told us why these companies do it. But what exactly is the problem with these companies investing in infrastructure and R&D here in the States? Will they go out of business if they were to do this?

ETA: clarity.

No, they won't go out of business, but presumably, they've done the calculations and projections and have determined that it would be more profitable to keep their money offshore and to spend it on foreign investments. But when they see a really good domestic investment opportunity, I'm sure that they would have no problem bringing the foreign profits back, if needed (i.e. they didn't have enough US money to make the investment). But the corporate tax rate puts a significant handicap on domestic investments with foreign profits over foreign investments with foreign profits. Corporations have a fiduciary duty to their shareholders to try and maximize profits. Just to be clear, US companies do spend plenty of money on infrastructure and R&D in the US, but I think there could be a lot more if foreign profits weren't subject to additional taxation.

I think the solution is to make the US more attractive to invest it. Right now, a foreign company can bring in foreign money without additional taxation from the US government, but a US company that wants to bring in foreign profits has to pay additional US taxes before it can bring that money back. Seems odd to handicap domestic companies like that.

[TerraPrime]

Rather than trying to stop a company from acting in its best interest, better to ask why the company wants to leave the US in the first place.

There is no such thing as "enough profit." Companies will always maximize their profit margins. That's what they're supposed to do. So unless you want to race to the bottom and have environmental regulations and labor regulations on par with places like Vietnam and Bangladesh, you will never win the companies over form just giving them more monies alone.

[The Fallen]

No, they won't go out of business, but presumably, they've done the calculations and projections and have determined that it would be more profitable to keep their money offshore and to spend it on foreign investments. But when they see a really good domestic investment opportunity, I'm sure that they would have no problem bringing the foreign profits back, if needed (i.e. they didn't have enough US money to make the investment). But the corporate tax rate puts a significant handicap on domestic investments with foreign profits over foreign investments with foreign profits. Corporations have a fiduciary duty to their shareholders to try and maximize profits. Just to be clear, US companies do spend plenty of money on infrastructure and R&D in the US, but I think there could be a lot more if foreign profits weren't subject to additional taxation.

I think the solution is to make the US more attractive to invest it. Right now, a foreign company can bring in foreign money without additional taxation from the US government, but a US company that wants to bring in foreign profits has to pay additional US taxes before it can bring that money back. Seems odd to handicap domestic companies like that.

I agree with making the US more attractive to invest in. But there has to be a balance or happy medium. I'm not versed enough in this stuff to say what that is.

The issue I have with the fiduciary duty to shareholders is that it comes at the expense of the workers (and sometimes the shareholders themselves). Or maybe I'm just jaded from all the shenanigans we hear about.

[Galactus]

Rather than trying to stop a company from acting in its best interest, better to ask why the company wants to leave the US in the first place.

Oddly enough I agree. (though probably for different reasons) don't expect corproations to not act like sociopaths: That's not how they're designed. CHange the rules to incentivize them to behave better.

[Seli]

Rather than trying to stop a company from acting in its best interest, better to ask why the company wants to leave the US in the first place.

....

They don't want to. They just want to use the common facilities and safety of that nation without paying for it.

[TerraPrime]

They don't want to. They just want to use the common facilities and safety of that nation without paying for it.

Which makes sense since that IS the path to highest profit.

[Davos OnionKing]

Which makes sense since that IS the path to highest profit.

That's the problem in a nut shell. You can't encourage greed (profit maximization, competition) and discourage it (environmental regulations and labor regulations). And more often than not the discouragement is selective to give the other guy a leg-up on the competition. I wish I knew the answer, because the system we have now doesn't seem to be ideal for the majority of us.

[lokisnow]

Oddly enough I agree. (though probably for different reasons) don't expect corproations to not act like sociopaths: That's not how they're designed. CHange the rules to incentivize them to behave better.

I agree. Like the fed, corporations should have dual mandates.

A fiduciary duty to shareholders to maximize value, and a fiduciary duty to employees to maximize their wages.

These are naturally in conflict and a corporation has to balance them.

Otherwise the best way to maximize shareholder value is to lobby for repeal of anti slavery laws. And if corporations aren't willing to go that far they are betraying their duty to shareholders.

[NestorMakhnosLovechild]

I agree. Like the fed, corporations should have dual mandates.

A fiduciary duty to shareholders to maximize value, and a fiduciary duty to employees to maximize their wages.

These are naturally in conflict and a corporation has to balance them.

That's not possible. Those are mutually exclusive obligations. You can't have a fiduciary duty to both.

[DanteGabriel]

A lower base rate and fewer loopholes seems to me to be a smarter tax policy -- large corporations that can afford accountants and tax lawyers can manipulate their finances to take better advantage of loopholes (and due to lobbying often have breaks built specifically for them to take advantage of) and thus you get all these stories about X Megacorp paying zero taxes in some year. Meanwhile, small businesses, your proverbial mom-and-pop, pay higher base rate and exploit no loopholes, have no specialized tax breaks.

But Congress will never do it. Tax reform is hard. And unpopular with just the wrong sort of interest group.