PJB’s latest tries to bring a little bit of reason to this Democrat manufactured election year hoopla over corporate inversions, manufactured by the same people who helped bring you NAFTA and GATT.
Really, it’s not that complicated. Let me walk you through it.
An American-based corporation is subject to the higher than world average corporate income tax rates on the gross income that it generates from its American business. It’s also subject to both the American corporate income tax rate and the relevant country’s corporate income tax rate on its business done outside the USA.
For our Yankee government to try to tax business that takes place outside the USA is like you setting the kids’ bedtimes for your neighbor’s household.
So to avoid this arrogant double taxation, firms are engaging in a tactic known as inversion. Large American firm buys smaller foreign firm, and the headquarters of the new combined firm is wherever outside the USA this smaller firm was based before the buyout. It now means that Uncle Sam can’t touch this firm’s outside-the-USA business income with the relatively high American corporate tax rates. It does NOT mean that the new firm’s American operations aren’t subject to those American tax rates, because they are.
Take for example the Burger King inversion. Before then inversion, BK’s American income was subject to American tax rates, but its non-American income in, e.g. the UK, was subject to both USA and UK corporate taxes, repeat for every other country where there are Burger Kings. What happened in the inversion is that Miami-based Burger King purchased Toronto-based Tim Horton’s, and the new combined Burger King Tim Horton’s (BKTH) will be based in Toronto. Which means that BKTH operations in the USA are subject to USA taxes, (and as you know, Tim Horton’s is going to open up a slew of stores in America, including one I told you about yesterday, the first one in St. Louis will be in Maplewood), but BKTH operations outside the USA are only subject to the relevant country’s tax rates and not also the American tax rate.
Therefore, this talk about possibly “repatriating” profits is a misnomer, because the profits were on income generated outside the USA all along. To the extent that they could be theoretically “repatriated,” its only in the sense that the arrogant Yankee government thinks that all income in all countries of American-based firms is subject to American tax rates.
So what’s the solution? Ideally, the Yankee government should quit thinking it owns the whole world. Short of that, the best solution is an international convention harmonizing corporate income tax rates, especially the top marginal rate.
The one big difference, though, is that businesses are taxed not on every dollar of cash they take in as revenue, as individuals are, but they are only taxed on their gross income, that is, revenue minus expenses, though not every item of business spending is a legally defined business expense according to the IRS.