There goes Burger King! This is just one of many --- and probably one of many more to come. Corporate inversions are here to stay, in the absence of corporate tax reform. Burger King will be relocating its country of domicile to Canada by way of a purchase of Tim Horton. Don't be surprised if Pfizer makes another attempt to relocate its corporate headquarters abroad also. Many believe Pfizer will make another attempt to purchase AstraZeneca. The Obama administration is in a full court press to block these multinational corporations from moving abroad and thereby avoiding excessive corporate tax rates here in the United States. The President and Treasury Secretary Tew are claiming it is unpatriotic for these companies to avoid US taxation. Ironic, if you remember that the US was born in a tax revolt against Britain.
So let me get this right. Here in the United States our corporate tax rates are 35% for multinational corporations. In most of the developed world, corporate tax rates run from 20% to 29%. Granted, we have a tax code littered with special tax credits and deductions for many US corporations. In most cases they don't come close to offsetting the 10% to 15% difference between American and non-American tax rates. By the way Canada's corporate tax rates are at 15% for multinational corporations. Some pundits have written of late that we are only talking about losing $2 billion in tax revenues to corporate inversion.
So what's the big deal? The big deal is that multinational corporations domiciled here in the United States have stashed almost $2 trillion in foreign banks from net income earned abroad. If these corporations were to repatriate this money by bringing it back to the United States, it would be taxed again at corporate tax rates. Keep in mind these earnings were taxed by the countries in which these corporations earned that income. This is clearly double taxation. Many folks --- including journalists who don't have significant experience in this specialized field --- simply don't realize that corporations pay taxes on the dividends they pay out to their shareholders . . . and that the very same money is then taxed a second time, when the individual recipient of the dividend is once again taxed on it! This is clearly double taxation, right here with our own country.
Did you know that six out of the seven G7 countries only tax income that is earned inside their own borders? Guess who is the one holdout? You got it, USA . Not only do we have the highest tax rates in the world, but we also tax all income earned throughout the world when the dollars are brought back to the United States. This is American "exceptionalism" in the worst possible sense of that term!
Common sense suggests we could create a number of good-paying jobs with that $2 trillion now residing --- or being reinvested --- on foreign soil. But these corporations have no incentive to take those dollars earned abroad and reinvest them in America. Why would they do so?
You see, folks --- in the long run, it's not about the $2 billion in lost tax revenues, and it's not about potential tax revenues lost by keeping corporate profits where they were earned --- in foreign banks. As President Bill Clinton would have said, "It's the jobs stupid."
Another economic consequence to these corporate inversions could be US dollars leaving this country being repatriated in the country of corporate domicile with no tax consequence.
It's time for comprehensive corporate tax reform here in the United States, if we are ever to become competitive again with the rest of the developed world. We need a level playing field to bring jobs and manufacturing back to the United States. We have been losing our manufacturing base for many years now. We need a level playing field to compete with the rest of the world for those manufacturing jobs.
I could tell you that, in my 26 years in the financial service industry, I have never seen a government as anti-business as the one we have right now. But the reason for the anti-business attitude is troubling and unprecedented --- it seems to be rooted in an ideological rigidity and a simplistic naiveté that are not susceptible to compromise.
I'm not saying we don't need government oversight, but the mounds of government regulations Corporate America now has to deal with are ludicrous. It's time we grew our manufacturing base back to levels we once enjoyed. To accomplish this, we must be competitive with the rest of the world. Our economic well-being depends upon it.
Sec. Tew you say it is unpatriotic for these multinational corporations to leave this country to avoid excessive taxation. Yet there is nothing illegal about these companies taking a common sense approach to their own financial situation. This country was built upon capitalism and free enterprise. In my opinion making good common sense decisions regarding your economic well-being is doing nothing more than following the principles that made this country great.
Mr. President, Secretary Tew and Congress, it's time for us to rebuild this country economically. A good start would be corporate tax reform. Until then corporate profits will continue to be reinvested outside the United States . . . just as Burger King is doing.
If we don't reform our corporate tax system . . . then we'll all HAVE IT YOUR WAY, Mr. President.