Miles White, CEO of Chicago-based Abbott Laboratories, explains corporate inversion, companies’ changing of national jurisdictions, frequently seeking tax relief:
First, inversion is legal. Period. It’s allowed in the tax code. The tax code even specifies the terms and conditions under which it may be done. Reference 26 U.S. Code Section 7874.
Inversion doesn’t change a company’s tax rate. A company pays the same tax rate in the U.S. after inversion as it does before inverting. A company also pays the same tax rates in foreign domiciles before and after inversion.
Inversion does not relieve any pre-existing tax burden. It does not reduce the tax that any company would ultimately have to pay on past earnings overseas that have been deferred under the U.S. tax system.
The tax law today views overseas earnings that have not been repatriated as part of the U.S. tax system, regardless of whether a company has inverted. Therefore, those past foreign earnings, if repatriated to the U.S., are still subject to full U.S. taxation.
What does change after inversion is a company’s access to its future foreign earnings generated outside of the U.S. tax system. Those future earnings may be used for any capital allocation purpose the company may have, including investment in the U.S., without the additional U.S. repatriation tax. Foreign taxes will have already been paid on those profits earned outside the U.S. It is the additional repatriation tax, imposed by high corporate tax rate in the U.S., that is not paid after inversion.
When a company changes its headquarters some portion of the jobs associated with corporate headquarters are inevitably lost.
For me that raises the question of what sort of jobs the Obama Administration actually wants? They clearly don’t want more corporate staff jobs. They don’t want more mining or logging or power plants or oil refining. They don’t want more heavy manufacturing. The tens of thousands of jobs for solar panel installers failed to materialize. We are so overbuilt in housing and infrastructure that larger numbers of new construction jobs are unlikely. States, their budgets pressed by tax revenues inadequate to pay their Medicaid bills and the pensions and benefits promised to past employees are reducing the number of present employees.
The economy isn’t like an army where you command and things happen but like farming. You prepare the soil, sow the seed, fertilize the crops, fend off predators and diseases. Nature (or God, if you prefer) produces the crops but the richness of the harvest can be influenced by the skill and effort you put into it.
It’s like the parable:
“Behold, a sower went out to sow. 4 And as he sowed, some seed fell by the wayside; and the birds came and devoured them. 5 Some fell on stony places, where they did not have much earth; and they immediately sprang up because they had no depth of earth. 6 But when the sun was up they were scorched, and because they had no root they withered away. 7 And some fell among thorns, and the thorns sprang up and choked them. 8 But others fell on good ground and yielded a crop: some a hundredfold, some sixty, some thirty. 9 He who has ears to hear, let him hear!”
We’ve been sowing among the thorns and on the stones for a long time. And yet, somehow, we’re surprised at the results.