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Wednesday, Oct 01, 2014
Editorials

Editorial: Flogging corporate deserters

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President Obama wants to lash “corporate deserters” — companies that move overseas to avoid U.S. taxes — with penalties and additional regulations.

It is another case of the president trying to pit Americans against one another instead of supporting an economy that would offer more jobs and opportunities for everyone.

“These companies are cherry-picking the rules, and it damages the country’s finances,” the president said in California last week. “It adds to the deficit. It sticks you with the tab to make up for what they are stashing offshore.”

Decrying the lack of “corporate patriotism” may sound good on the campaign stump, but if the president was genuinely interested in keeping American companies from shifting operations overseas, he would attack the country’s tax burden.

The nation’s 35 percent corporate tax rate is the highest in the industrial world, and even though exemptions allow some companies to pay considerably less, the U.S. tax rate remains unduly burdensome, precisely the reason more companies are moving abroad.

As The Wall Street Journal points out, when state taxes are added, the average corporate tax rate in the United States is 40 percent, double the average in Europe.

Small wonder companies look for relief.

Since 1983, according to the Congressional Research Service, 76 companies have moved their corporate headquarters from the United States — 47 in the past decade.

The Journal reports 19 such deals in the past year.

Just this month major U.S. drug companies AbbVie Inc. and Mylan Inc. announced plans to move central operations overseas.

What is even more important than “corporate patriotism” is that American companies be able to compete on the global market. It is hard to do that with the most stifling tax rate on Earth.

The Obama administration has given lip service to tax reform, but invariably ties it to additional spending measures.

But genuine reform could ignite the economy.

S&P Capital IQ, a financial research firm, analyzed what would happen if Congress cut the rate by 10 percent. It calculated the nation would create 10 million jobs, which would more than offset the loss in federal revenue.

The study said companies would move operations from overseas and invest more in U.S. operations.

Michael Thompson of S&P, who oversaw the research, told The Daily Ticker: “This would be a game-changer. If the United States were one of the most competitive tax domiciles in the developed world, how would that change the math in a CEO’s or a CFO’s head? It would change it a lot.”

Walter Galvin, former chairman of the National Association of Manufacturers’ Tax Committee, points out another folly of the nation’s corporate taxes.

In a recent Wall Street Journal article, he wrote, “American businesses are taxed on a worldwide basis regardless of where in the world revenue is earned. This means U.S. multinationals pay taxes twice, first to the foreign country in which they do business and then to the U.S. ...”

It seems to us that “corporate patriotism” should mean making American businesses as strong as possible. The president — and Congress — should stop looking for scapegoats and get serious about corporate tax reform.

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