A Simple Solution to Corporate Tax Inversions

Manhattan Institute reports:

You have to hand it to the U.S. government: It has managed, with a web of new rules and regulations, to increase the cost to corporations of moving their headquarters overseas without doing anything to stem the actual migration.

The announced merger last month between U.S. pharmaceutical giant Pfizer Inc. and smaller Ireland-based Allergan PLC - Allergan is buying Pfizer - put corporate inversions back in the headlines.

U.S. companies have been merging with smaller, overseas partners with increasing frequency to avoid the 35 percent corporate tax rate (39 percent with state tax included), the highest of the 34 nations in the Organization for Cooperation and Development.

In addition to its high tax rate, the U.S. is one of only six OECD countries that taxes domestic corporations' foreign profits, which are already taxed by the country in which they are earned. Such a system puts U.S. companies at a competitive disadvantage at a time when most countries have adopted a territorial tax system, which taxes domestic profits only. And it explains why companies are holding more than $2 trillion of profits overseas indefinitely instead of repatriating them.

Remember this the next time a liberal tells you corporate taxes can go higher.