U.S. firms head for Europe, fleeing a nutty tax code

 akademimerdeka.org

Low taxes, light regulation and entrepreneurial culture- these are the advantages of America.

Those advantages are getting lost, because of the inefficient health care system that eats up 18 cents of every dollar in the economy, and a punitive and convoluted corporate tax system.

The latter can be seen in drug giant Pfizer's recent announcement that it would redouble its effort to buy Astra Zeneca and reincorporate in the United Kingdom. Pfizer decided to reincorporate in the UK because they are paying an effective rate as high as 27.5% in the United States recently. In Britain, the company would pay no more than 20%. 

Corporate tax reform of the type proposed by President Obama or by responsible members of both parties in Congress is needed. Simplifying the corporate tax system to eliminate loopholes and perhaps by raising the tax on dividends would keep companies home.

Many see Pfizer's transaction as proof that corporate tax rates are too high. If we'd just lower our corporate tax rate, this logic goes, companies would have no incentive to move offshore.

However, the United States couldn't win the ensuing race to the bottom, that there will always be tax systems more lax than ours. The solution is not only to reduce the corporate tax rate, we also should subsidize corporations with negative rates to stay in the USA. But eliminating deferral and strengthening anti- -inversion rules would be a good start.