Don’t blame corporations for their decisions to flee the United States’ punitive tax climate. That’s the message from Thomas Donlan in his latest Barron’s editorial commentary.
Some American politicians are freaking out about the merger of Pfizer and Allergan. For starters, it would be the largest combination ever in the merger-manic pharmaceutical industry; most pols who believe that big is bad in business also believe that bigger is worse.
But much more is said against the deal. This merger also is “unpatriotic,” because it could be fiscally dangerous to U.S. tax collectors. …
… The merger is structured to allow Pfizer to undertake a corporate inversion, which Obama has called an “unpatriotic tax loophole.” Allergan’s corporate address is Dublin, a land of elfin charm and dwarfish taxes on corporate income—12.5%, compared with the maximum 35% federal rate in the U.S. Pfizer is taking over Allergan, but it will invert the paperwork to make a new home in Dublin for tax purposes.
Allergan, by the way, is itself the product of an inversion: Actavis, a U.S. company, acquired Warner Chilcott and its Irish citizenship in 2013 and then acquired Allergan, also a U.S. company, and adopted its name. …
… Since the U.S. has the highest corporate tax rate in the industrialized world and is home to many multinational businesses, U.S. corporations have the most to lose if their home country gets tougher on taxes. More and more of them are deciding that what they need is a new home.
American taxation of corporate income is above all a whimsical undertaking. There is no moral code that says how much is too much. The only policy is that of Jean-Baptiste Colbert, minister of finance for Louis XIV: “The art of taxation consists in so plucking the goose as to obtain the largest possible amount of feathers, with the smallest possible amount of hissing.”
