The main goal of the vast majority of corporations is to increase profits year over year.
It’s a large part of how their value is determined on Wall Street and it’s pretty
much the whole kit-and-caboodle for why corporations do everything they do.
One great way to increase profits is to sell more goods.
Another great way is to cut down on costs, which could mean letting people go, or buying
cheaper materials, or paying less in taxes.
Corporations love paying less in taxes.
One way to do that is by switching their corporate domicile to a country with a lower tax rate.
It is called corporate inversion and it is easy to do.
They just merge with a tiny company oversees, in let’s say Ireland, and they become an
Irish Company instead of an American one.
And it makes sense: the US has a corporate tax rate of 35%, whereas Ireland has a rate
of 12.5% for example.
The company increases profits without having to lay anybody off or sacrifice the quality
of their products or change pretty much anything else about their business.
Tyco International, Fruit Of The Loom, and Sara Lee have already done this.
It’s a win win for everybody...except the American public.
They lose tax revenue.
This has a lot of people up in arms.
And justifiably so.
There are congressmen calling corporate inversions un-patriotic.
There are other people urging the US to lower their tax rate to encourage companies to stay.
Others want foreign nations to step up and block the mergers.
There is even a bill in the House Of Representatives designed to regulate when companies can and
cannot change their corporate domicile.
Unfortunately, there’s no silver bullet solution here.
But there is one thing you should keep in mind when thinking about the issue of corporate
taxation.
America is an enormous market with unbelievable buying power.
If a company wants to maintain profits, they have to deal with us.
They can’t find this buying power elsewhere and they can’t afford to lose the US market.
The government doesn’t have to lower tax rates or compromise our laws to make them
stay.
They just have to set up clear, consistent laws that benefit the citizenship, even if
that means making corporations pay more.
The struggle is setting up laws that work, which isn’t easy in our current political
climate full of partisanship, lobbying, and commentators overreacting on both sides.
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