Instead of Crying Wolf, Obama Administration should Consider Reforms to Stop Tax Losses

Taxation, as many population studies have proved, is a marvelous behavior modifier. The growing trend of tax inversion in the US also proves this point. Companies in the US have had to face higher taxes than anywhere else and many are moving out to better tax havens for this sole reason. It’s highly predictable behavior, and the best move that an enterprise can make to safeguard its own interests.

President Obama, and his administration, has repeatedly called tax inversions an ‘unpatriotic move’ but little has been done to stop the trend from becoming normal behavior. Only recently did the Treasury Department start to make legislative changes that will make it harder for companies in America to move their tax domicile abroad. But if the Obama administration is that worried about the tax loss, then it needs to prepare some serious reforms that go beyond labeling a company’s decision ‘unpatriotic’.

These reforms could be to lower the corporate income tax rate, simply the tax code, stop the overhaul of America’s health care by the means of destroying the full time employee and imposing the new health care rule on any business with more than 50 employees.

Govt. interfering with company’s decisions

Last month, the Treasury Department announced that it would put rules in place that would make inversions more difficult than they are now. While some have hailed it as a sign that the government has finally decided to wake up to reality, tax attorneys in high-profile corporations are not very happy with the move. The reason is simple: tax inversion is not a crime. US corporations that have moved abroad looking for better tax cuts are doing so within the purview of the law and the government is clearly interfering with corporations while they act within the law.

What is needed is for the Congress and the government should sit down for a brainstorming session and come up with laws that actually work to stop the tax losses America has been experiencing for some time now. The federal tax rate in the country is now at 35%, which is 15% higher than most European countries. Also, US tax decree is that all income is considered taxable, while in other countries only the income that a company earns within its geographical boundaries is actually taxable. In such a situation, corporate houses have no better choice than to move abroad unless some radical changes are made into law.

On top of this, if Sarbanes Oxley was curtailed, American companies would not have to employ so many accountants just because there was a huge screw-up at Enron – which no longer exists. So now all companies have been impeded with this law for over a decade now.

Tax inversion not a crime

We should also remember that by changing their tax domiciles, companies do not automatically change their US liability. Burger King, for example, was looking at a merger with Canadian coffee-and-donut chain Tim Horton’s, as a result of which the fast food giant would have moved its headquarters to Canada. But this does not mean that Burger King can automatically change the number of delicious fast food joints it operates around the country or the US tax that it pays.

But yes, by doing so, Burger King and other companies that have changed their tax addresses which will allow them to avoid paying the highest corporate tax rate in the world. According to many US tax attorneys, America put many American companies in the corner with only one way out.