Thank you for visiting Paducahsun.com, online home of The Paducah Sun.

June 2012
27 28 29 30 31 01 02

Click here to submit an event.

INVERTED Obama doesn't grasp why firms are leaving

Staff report

President Obama sounds like a character out of Ayn Rand's libertarian manifesto "Atlas Shrugged" when he accuses companies that are fleeing the U.S.'s broken corporate tax structure of being lacking in "economic patriotism."

Obama and others in his administration are upset over a wave of American companies, mostly in the pharmaceutical and medical device fields, doing "inversions" to become foreign companies and escape the grip of the U.S. tax code. Corporate taxes in the U.S. presently are 35 percent, the highest in the developed world. Additionally, the U.S. taxes domestic companies' earnings abroad, something that is rare among western economies. Most foreign nations only tax their companies' domestic earnings.

In an inversion, a U.S. company acquires a smaller foreign company in a tax friendly domicile such as Ireland, where effective corporate tax rates are in the teens. The new company then reincorporates as a foreign entity and is taxed accordingly.

Inversions at one time were relatively rare. The Wall Street Journal reports there have been about 50 in the past decade. But the pace has quickened dramatically in the past couple of years. Almost a dozen such transactions are pending, including a $42.9 billion deal between medical device maker Medtronic and Ireland's Covidien PLC and drugmaker AbbVie Inc.'s proposed $54 billion deal with Dublin-based Shire PLC. A senior administration official was quoted by the WSJ last Friday as saying as many as 30 inversion deals may be in the pipeline.

The administration and some lawmakers are concerned about "a bandwagon effect" among health care firms as inversions pick up pace. They fear for instance that an inversion by Walgreens could put pressure on CVS Caremark to follow suit. Walgreens is in a position to do an inversion with Alliance Boots, a European drug wholesaler and retailer in which Walgreens owns a 45 percent stake. Walgreens has an option to buy the rest of the company next February and it has made clear an inversion could happen if it does so. If Walgreens does reincorporate abroad, CVS might feel compelled to do likewise to remain competitive.

These developments have panicked the Obama administration. They moved Treasury Secretary Jacob Lew to demand that Congress take action "immediately" to "shut down this abuse of our tax system."

But Lew has it backwards. The problem with inversions is not one of companies abusing the tax system. It is a problem of the United States having a corporate tax system that is not competitive with the rest of the developed world. What is needed is reform of the corporate tax code to bring U.S. rates and practices in line. There has been little in the way of leadership from the White House on that front.

Obama's ruminations about "economic patriotism" serve to underscore how poorly he grasps the economics of business and markets. Corporations have a legal duty to maximize returns to shareholders, and to that end prudent use of tax avoidance strategies is their job. Well beyond that, companies have a responsibility to survive, and that means not giving away cost advantages to competitors.

President Obama should realize that it is not inversions that are unpatriotic. What is unpatriotic is American politicians who support corporate tax policies that strangle domestic job-creators and drive them from our shores.

Comments made about this article - 1 Total

L Smith posted on: Thursday, July 31, 2014 5:28 PM

Title: Understanding Inversions

Obama may not understand everything, but he is doing exactly what he was put in office to do - destroy the United States, and he is well on way to accomplishing his mission.

Comment on this article

Your comment has been submitted for approval
captcha c6e59c0a3a0044149ea03c4c2d2de56f
Top Classifieds
  • 2 Free Cats with toys 270-898-4963 Details
  • Purebred Yorkie puppies, no papers, t ... Details
  • BASENJI (very rare) or Cocker pups. 2 ... Details
  • Men's Trek 7300 andWomen's ... Details
  • FNB Bank, Inc. will be accepting seal ... Details
  • CompletelyRemodeled-4 bdrm., 2 bath,1 ... Details
  • SEEING is believing! Don't buy p ... Details
  • HandymanSpecial 3 BR 1 BA fenced inba ... Details
  • 3 BR, 2 ba, C/A, fenced in backyard, ... Details
  • FISHING RETREAT 4-SALE Older Mobile ... Details
  • Details
  • 9801 Enlow Dr. 2 Acres, 3 lg. bdrm., ... Details
  • 2002 36' DIESEL PUSHER 40,XXX MI ... Details
  • 2007 Mazda MX5Miata conv.hardtop, $85 ... Details
  • 26ft Coachman Cascade (2004) 13ft sli ... Details
  • 2011 Cadillac CTS 4 dr., cream color, ... Details
  • AUTOMOVER SPECIAL6 lines - 14 dayson ... Details
  • 2x3 18 Passenger Bus wheelchair lift ... Details

Most Popular
  1. 'Why Bobby Lee?'
  2. Holiday weekend kicks off another busy boating season
  3. City ignores veteran status of soldiers who fought for CSA
  1. Tilghman High graduates 152
  2. Beaver Dam rest area will stay shut most of the year
  3. Purple Toad's Dossey wins Winemaker of the Year title
  1. City ignores veteran status of soldiers who fought for CSA
  2. 'Why Bobby Lee?'
  3. Lawn pickers

Check out these recently discussed stories and voice your opinion...