Wednesday, May 27, 2009

The Myth of a Corporate Tax Exodus


When the Obama administration unveiled its plan to crack down on corporations using tax havens to avoid paying their full share of tax, there was a corporate outcry, especially loud in the business media. Many trumpeted the view of Americans for Tax Reform, which predicted that making companies pay their taxes would cause U.S. companies to move abroad, taking their capital and jobs with them.

That's a scary proposition, even when we're not in a recession. It's also utter nonsense. The American economic right wing often seems like a parody of the vulgar Marxist view; instead of asserting that all human behavior is based on economic decisions, the right wing asserts that all decisions are based on taxes. In reality, there are dozens of reasons why companies locate where they do: sure, taxes are one, but so are quality of infrastructure (especially communications); access to a productive and stable workforce; and the desire of employees to relocate.

And thus, not surprisingly, as multinational corporations adjust to the likelihood that their fictional headquarters in places like the Cayman Islands may have to end, the movement that we're seeing is not an exodus from the United States. Rather, as today's Wall Street Journal reports, the movement is from truly law-evading locales like the Caymans to better regulated low-tax jurisdictions like Ireland and Switzerland. Accenture (ACN) has become the latest company to approve such a move, joining Tyco (TYC), Ingersoll Rand (IR) and a host of other companies who have the option to declare their headquarters in just about any country but want to remain legitimate.

But look, if you're really still worried that Intel (INTC) or Microsoft (MSFT) are going to close up shop and move to India, there's a very simple solution. It's what the Senate version of a tax haven crackdown proposed the last time it was introduced: the government simply declares that any company doing $50 million or more inside the United States will be taxed as a U.S. corporation. That way, U.S. companies will be welcome to move abroad if they have good reasons, but avoiding taxation will not be one of them.

Blog Archive