Capitalism vs. Economic Patriotism
Red State suggests that corporate inversions cannot be combated by lofty notions of ‘economic patriotism’, but by lowering the corporate tax rate so that the US can become a competitive location for multi-national businesses.
President Obama chided companies who have essentially moved overseas for tax purposes. He shamed them for practically renouncing their citizenship and not exercising “economic patriotism.” Obama is not planning on stopping at just publicly denouncing companies and hoping they comply with his view of economic patriotism. He intends on taking action to prevent this from occurring, and he is asking congress to pass legislation in response.
Obama’s statements at a California fundraiser were regarding a procedure called inversion, which is entirely legal. A corporate inversion is when two companies merge, one domestic and one foreign. The foreign company can then be appointed as the “parent” if its stakeholders own 20% or more of the newly merged stock. If this threshold is met, then a new official headquarters can be claimed overseas, meaning they can take advantage of another country’s lower tax rates.
Whether by executive or congressional action, President Obama aims to restrict the use of inversion. Perhaps after 47 companies have gone through this process in a decade and less than expected tax revenue is enough to make the dysfunction in Washington DC dissipate. Obama stated his desire to alter the tax code and require foreign companies own at least 50% of the combined stock in order to move the headquarters overseas. A bill introduced in May of 2014 would mandate the 50% stock ownership threshold and enforce a 2 year ban on corporate inversions.
The motivation behind halting corporate inversions isn’t based on patriotism or saving American jobs.
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