President Obama says he wants to act on so-called “inversion deals” that have American corporations moving their domiciles to overseas tax havens through the acquisition of a foreign company.
Nine inversion deals have been agreed to this year by companies ranging from banana distributor Chiquita Brands International Inc to drugmaker AbbVie Inc and more are under consideration. The transactions are setting a record pace since the first inversion was done 32 years ago.
Several Democrats have offered bills to curb inversions, which let companies cut their taxes primarily by putting foreign earnings out of the reach of the Internal Revenue Service.
Obama will throw his weight behind the Democratic bills, calling for a rule change that would deem any company with half of its business in the United States to be U.S.-domiciled.
The proposed changes, already put forward in Obama’s annual budget, would be retroactive to May of this year and implemented independently of moves to achieve broader tax reform.
“We have seen increased activity from companies in the inversion space and as a result the president’s view … is that we should be acting as quickly as possible,” a White House official told reporters on a conference call.
Our friends on the left have been complaining about this sort of off-shoring for some time, and it has always confused me.
If you look at government policy from a free market perspective – that countries are competitors competing for businesses and commerce by offering things like a reasonable tax code, prudent regulation and a stable political and economic environment – what’s really happening is that these companies are just taking a better deal. They’re acting rationally in their own self-interest, and the interest of their owners, stockholders, etc.
To be sure, companies fleeing American taxes isn’t a good thing, but is the solution trying to force those companies to stay in America? Maybe, if American companies feel they can get a better deal by domiciling outside of the United States, it’s time to take a long and hard look at our tax and regulatory regimes.
This is a real weakness in the liberal world view. The left believes that they can change tax and regulatory policy, and that the actors in our economy will just sit still for it. But that’s not true. When you raise tax and regulatory burdens, the companies targeted by those changes are going to try and find ways to lower the burden.
The answer is to keep tax and regulatory burdens here in the United States low so that companies don’t want to leave.