Blog

Home/Current events/Corporate US Tax Dollars Continue to Leave US – How Bad is It?

Corporate US Tax Dollars Continue to Leave US – How Bad is It?

US government authorities have tried to assure us that they are cracking down on so-called “inversions”, which allow the merging of US-owned with foreign-owned companies, followed conveniently by the combined entity paying corporate taxes in the much lower taxed foreign country.  This effectively allows the formerly US-based company to pay significantly less in taxes (or none at all) to the US.  This accounting slight of hand, where US companies basically “renounce their US citizenship” so that they can pay less in taxes (a shareholder-favored/US citizen disfavored move) has been going on for at least 20 years now.  However, it has become more popular in recent years.  Any limitations on this practice attempted by US government authorities recently has not decreased the exodus, presumably in order to not upset major shareholders of the corporation.  This kind of thinking must stop, because it is slowly eating away at the very fabric of our great country.  It appears that even some of our largest companies are beginning the inversion process (most recently the Milwaukee-based Johnson Controls, and the New York-based Pfizer), companies founded well over 100 years ago.

So, how bad is the problem today?  One way to define the problem is to determine how much US Corporation tax is lost annually, compared to total tax receipts.  For example, according to the Office of Management and Budget, in 2014 there was $320,731,000,000, or approximately $320 billion tax paid by US corporations.  It is estimated that US companies that have already completed inversion generate approximately $70 billion annually in sales.  At the current US corporate tax rate of 38%, this translates to as much as $26.6 billion in US corporate tax dollars averted, or over 8% of the total 2014 taxes collected.

This 8% number may not seem huge, but it does nothing to quantify the damage to the US workforce and the future of our country.  In other words, when US companies merge into a foreign company, jobs are almost always lost, and may never come back.  Further, the lost taxes only makes the federal deficit worse.  Its time for our representatives in Washington to get back to work, and take this problem much more seriously before it gets any worse.

This is not a difficult problem to fix, guys.  It’s mainly a matter of determining the level of taxation (read: lower) where it does not make sense for at least some of these companies to leave.  That number is going to be between 38% and 15% (the tax rate of Ireland, where most of these companies seem to be going).  Further, the US as a whole is going to need to become more prudent about how it spends tax dollars (read: cut out more of the fat).  Although this is the fix, it will not come easy, and it will no come fast.  But it must be done.

Written by

The author didnt add any Information to his profile yet

Leave a Comment