Our view: The unseemly practice of tax avoidance
Technically, merging and reincorporating abroad to avoid taxes is called an inversion. Bluntly, it’s called a disgrace. U.S. companies should push for tax reform rather than departing on paper and handing their tax burden to American taxpayers.
The latest to seek refuge from Uncle Sam is Salix Pharmaceuticals of Raleigh, North Carolina. The company announced earlier this month that it is merging with an Italian drug company and will re-incorporate in Ireland, allowing Salix eventually to reduce its long-term tax rate from the high 30 percent range to the low 20 percent range. Salix, founded in 1989, makes drugs to treat gastrointestinal disorders. It has flourished — its revenue this year is expected to exceed $1 billion for the first time — and it will remain in the U.S, while its reduced tax payments go to Ireland.
In saving green on the Emerald Isle, Salix will join Ingersoll Rand, another North Carolina-based company that also claims an Irish status for U.S. tax purposes. Drills made by Ingersoll Rand were used to carve Mount Rushmore, but the company has no patriotic commitment to paying its fair share in taxes despite having received federal contracts worth hundreds of millions of dollars.
In a cover story this month headlined “Positively un-American tax dodges,” Fortune magazine railed against the practice of companies profiting immensely from their presence in the United States even as they shift their addresses abroad. By Fortune’s count, 28 seemingly American companies on the S&P 500 stock index are incorporated in places like Ireland and Switzerland to avoid higher U.S. tax rates. More are preparing to do the same.
Apologists for this corporate shell game say it’s a maneuver forced on them by excessive corporate taxes in the United States. The U.S. corporate tax rate of 35 percent is one of the highest in the world, but most companies use various exemptions, shelters and accounting methods to pay far less than the full rate. A General Accounting Office report based on 2010 tax returns found that the average effective tax rate for profitable U.S. corporations was 13 percent. Indeed, a 2008 GAO report on corporate tax liabilities found that nearly 55 percent of all large U.S.-controlled corporations reported no federal tax liability in at least one year between 1998 and 2005.
Rather than being forced to flee burdensome U.S. taxation, corporations are paying less and less of the cost of running the nation that nurtures their success. Fortune reports that tax cuts and tax avoidance “have pushed down the corporate share of the nation’s tax receipts — from 30 percent of all federal revenue in the mid-1950s to 6.6 percent in 2009.”
Lawmakers and taxpayers ought to be indignant about this unseemly avoidance of tax payments and unpatriotic shirking of responsibility.
