The Aug. 8 Union-Bulletin contained a column by Jerry Wegman regarding tax inversions. Mr. Wegman is a retired professor from the University of Idaho. He calls inversions a tactic by which corporations can avoid paying income taxes to the U.S. government.
Wegman missed a few points in his liberal presentation.
First, according to a recent article in The Wall Street Journal, the U.S. has one of the highest income tax rates in the world. The article indicates the U.S. tax rate is 39.1 percent compared to a country like the United Kingdom, where the rate is 21 percent. If we expect our U.S. companies to compete worldwide then maybe we need a level playing field.
Second, U.S. nonfinancial companies held nearly $950 billion in cash overseas at the end of 2013. This cash basically represents profits (after paying foreign income tax) earned by these U.S. companies. If this money were returned to the U.S. our country would also expect to collect U.S. income tax on these profits.
In other words, the company would pay both a foreign income tax and a U.S. income tax on the same dollars.
Since our government hasn’t addressed the issue of extremely high corporate income tax rates and the taxation of foreign earnings, the inversion concept has arisen.
This basically allows U.S. companies to acquire foreign companies and then transfer their operations to that foreign companies where tax rates are more competitive.
In addition they can then move their cash without incurring a tax liability in the U.S.