By: Dr. Lynn Reaser
There has been a flurry of mergers and other transactions in recent weeks, with a number of companies reincorporating overseas. This shift allows firms to receive the lower tax rate of the foreign country (“tax inversion”) on that portion of their earnings generated overseas.
Many, including U.S. Treasury Secretary, Jack Lew, have criticized this behavior as “unpatriotic.” President Obama pointed out that companies benefit from the education system and infrastructure in the United States and should help pay for those advantages. However, all companies pay for the part of their earnings generated in the United States.
The spotlight needs to be shifted to Capitol Hill. Companies that have domiciled abroad are only following their responsibilities to their shareholders and employees to be competitive and profitable. If incentives are in place that cause behavior we do not like, we need to change policy, not punish those legally reacting to those incentives.
We are the only major country that taxes earnings from foreign sources and have the highest corporate tax rate of 35%. Congress desperately needs to reform U.S. tax law to remove the handicaps confronting companies, their employees, and all of us.
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