Edward Kleinbard urges us to adopt policies that end the practice of “inversion”, corporations changing countries for tax purposes:
Yet inversions are symptomatic of a corporate tax system that is highly distortionary, unstable and riddled with loopholes. The headline rate of 35% is well above world averages, effective rates imposed on investments vary wildly, and the international rules in particular are an incoherent mess. Inverting firms try to justify corporate self-help as the right response, but inversions both gut the domestic tax base and allow key players (those with international operations) to excuse themselves from the debate, while domestic firms are left holding the bag.
Thus fundamental corporate tax reform is urgently needed, but the path forward has two prongs. First, Congress should enact a temporary law to preserve the status quo, and thereby the corporate tax base, by treating inversions according to their economic substance, and by foreclosing the “hopscotch” strategies described above. Without this, there will be no corporate tax base left to reform.
Then both parties need to get serious about substantive reform, lowering the rate to say, 25%, and imposing a stable international regime that works well with territorial systems in other countries. The work Congress’s tax-writing committees did last year shows that reform is possible. Now congressional leadership needs to make it a priority.
What does present law achieve? That’s not a rhetorical question but a practical one. The only thing I can see that it positively does is help politicians by scoring brownie points with constituents eager to punish corporations and get them to pay “their fair share”, neither of which it accomplishes. That and providing a lever for securing donations from companies and their lobbyists eager to get a tax break.