Ways and Means Chair Urges Treasury to Reconsider Corporate Inversion Rules

Published October 15, 2016

The chair of the U.S. House Ways and Means Committee is calling on the Treasury Department to reconsider proposed regulations intended to discourage U.S. businesses from merging with overseas competitors and moving a shared headquarters to another country.

Ways and Means Chairman Rep. Kevin Brady (R-TX) met with Treasury Secretary Jack Lew in September to discuss pending restrictions penalizing U.S. multinational businesses engaging in corporate inversion, a legal process allowing international businesses to avoid paying taxes on both foreign earnings and money transferred from foreign branches to the main company located in the United States.

Drafts of the Treasury Department’s anti-inversion restrictions were published in April. Final rules have not yet been released.

‘A Waste of Time’

Matthew Glans, senior policy analyst at The Heartland Institute, which publishes Budget & Tax News, says the government should reform taxes to make the nation more attractive for multinational companies, a decision Glans says would bring money back to the United States.

Attempting to demonize companies choosing to move their operations overseas is counterproductive and a waste of time,” Glans said. “The United States needs fundamental corporate tax reform. Instead of trying to punish these companies, the United States should lower its corporate rates and switch to a territorial system. That would make America more competitive because foreign earnings would be brought back home for U.S. investment. It would also encourage more companies to set up headquarters here.”

‘Sufficiently Anti-Competitive’

Richard Ebeling, a professor of economics at The Citadel, says government regulators’ attempts to crack down on corporate inversions won’t work as planned.

If the U.S. government pursues its tightened campaign against corporate inversions, it will create an incentive for many new companies to set up their headquarters in other countries from the start and undermine the incentive for any foreign companies to move their headquarters into the United States,” Ebeling said. “Instead, if a noticeable number of private enterprises are making the decision to undertake a corporate inversion, this should be a signal to the government that its taxing and regulatory structure is sufficiently anti-competitive compared to other countries and that U.S.-based companies are being driven out of America.”

Holding Back U.S. Businesses

Steven Globerman, a professor of international business at Western Washington University, says U.S. companies are being held down by high corporate taxes.

“Even with relatively loose regulations regarding inversions, U.S. companies are put at a competitive disadvantage relative to foreign companies, both in terms of having lower after-tax profits for reinvestment and also being able to reinvest earnings earned abroad back into U.S. operations, because repatriation of retained earnings from abroad triggers the higher U.S. corporate tax rates,” Globerman said.

Globerman says the solution is to reduce the nation’s corporate tax rate, currently 39 percent when including average state taxes, to a level competitive with the Organisation for Economic Cooperation and Development (OECD) non-U.S. average of 24.8 percent.

“If I could change anything, it would be to lower the corporate tax rate substantially, certainly to no [higher] than the OECD average, but probably even lower,” Globerman said.