Home > Free Market > High corporate taxes cause Inversions

High corporate taxes cause Inversions

A huge political talking point used by both sides of the aisle in recent years is corporate inversions. Corporate inversion (also known as corporate tax inversions) occur when a company relocates its headquarters into a country that has dramatically lower tax rates than the companies country of origin. The companies that do this generally are competing in the global market. Being headquartered in a country with a much higher tax rate gives companies a serious disadvantage in the market. If the US is serious about reducing the amount of corporations going to other countries then something needs to be done about the corporate tax rate.

I know what some people will say: “but corporations aren’t paying their fair share”. KMPG has provided a nice table showing the corporate tax rates between 2006 and 2014  of 134 countries and average rates for regions. In this table the United States has the second highest corporate tax rate with 40%. The only country higher is the United Arab Emirates (UAE); but it should be noted the 55% tax rate in the UAE only applies to Oil Companies. Ireland is a country many US companies have chosen when deciding to go overseas. In Ireland the corporate tax rate is 12.5%. That is a huge drop from 40% that US headquartered companies must be crippled with.

Over at CATO the chart below was shared by Chris Edwards:

Chart Source: CATO

Chart Source: CATO

Looking at this chart comparing the United States corporate income tax rates to other regions shows how disadvantaged our businesses are in the global market. Even in North America the US is at a disadvantage. Canada has a corporate tax rate of 26.5% and Mexico has a corporate tax rate of 30%. In the global market the US can’t even be competitive with its two neighbors.

Another talking point brought up often is “all of these corporations get special tax breaks, so they really aren’t paying their fair share”. I would agree with that statement. Personally I would rather get rid of all corporate taxes… but since that isn’t likely to happen anytime soon I think the corporate tax should be flattened. The current corporate income tax system in the US is nothing but income redistribution done at the corporate level. Republican and Democrat politicians have worked for decades to get special tax deductions and tax credits for their favored businesses or industries. That has made it hard for small businesses, which are disadvantaged with paying the full 40% while their large competitors have bought tax breaks in DC. The same disadvantage that US companies have on the global level is shared by corporations within the US if they are not connected to DC politicians.

If the US is serious about ending corporate inversion the current tax rates must be lowered. Unfortunately that isn’t likely to happen any time soon. Too many people think corporations aren’t taxed enough and too many politicians have been bought by big business to provide special tax breaks. In such an environment it is unlikely anyone will look at the obvious answer: cut corporate taxes to a flat rate with no special deductions.

  1. Merlyn Schutterle
    July 28, 2014 at 11:13 am

    Corporations do not pay any taxes.. Only people do..It comes out of their earnings., Well if you want to call it that. Investments means putting money in a corporation and getting more money back without really having to work for it. It’s getting someone else to do the work instead of you.

    Then when enough people get enough money together in a corporation, they can hijack the agenda and claim to speak for everyone in the company even though there will be many in the company who do not agree with the official agenda.

    .They can buy their candidates and buy enough propaganda for us to vote for.their choices Usually who wins the election depends who has the deepest pockets, which gives good candidates such as Mike Myers no chance to win.

    We love the idea of prosperity and growth, but it comes at a high price which our planet has to pay the real price. We human beings are the cancer of the planet, and we will grow until we destroy our host and ourselves.. I don;t think there is really any way we are going to stop it..Perhaps this is how the creation was designed to work.

    As the old Johnny Cash song goes,” I don;t like it, but i guess things happen that way.”

  1. September 5, 2014 at 4:19 pm

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