Sen. Portman wants corporate taxes overhauled
Friday, June 27, 2014 12:01 AM
WASHINGTON, D.C. — U.S. Senator Rob Portman this week petitioned for the reworking of the corporate tax code, arguing that American businesses are fleeing the country to escape the U.S. tax code.
Writing in an op-ed piece published Wednesday in the Wall Street Journal, Portman explained, “The basic U.S. corporate tax rate is 39%, the highest on the planet. The average rate among other major industrialized countries is 25%. Worse, the U.S. tax rate applies not only to income earned within U.S. borders, but also to profits American companies make overseas.”
Portman went on to use the example of the medical device company, Medtronic, which recently announced plans to acquire the Ireland-based firm Covindien and relocating headquarters to Dublin, Ireland. Portman asserted that Medtronic is now the biggest company yet to leave the U.S. for a more favorable tax climate.
“It’s just the latest example, and the flight will continue until the U.S. reforms its outdated, uncompetitive tax code,” Portman argued.
Another recent example cited by the senator involves Van Wert County’s largest employer, Eaton Corporation, which in May acquired Cooper Industries, a smaller company that is incorporated in Ireland.
“The new company established its headquarters in Dublin, substantially reducing its tax liability in the process,” Portman wrote. “Businesses are willing to pay to put a few miles between them and the IRS: U.S. companies in 2013 paid upward of 55 percent more than their target’s market price for deals that allowed them to move overseas, according to a May report in this newspaper. Domestic mergers, on the other hand, usually only yield a 20 percent premium.”
According to Portman, the U.S. should not force companies to stay by stiffening existing IRS rules to penalize certain cross-border mergers, which he claims will only hurt American employers and workers by making them less competitive in a global economy built on the free movement of capital and labor.
“The president and Congress should instead overhaul the tax system, as other countries around the world have already done,” asserted Portman. “To attract investment, Canada in 2012 lowered its federal corporate tax rate to 15%, the last cut of a seven-point decline that began in 2006. In fact, every single one of our major foreign competitors has reduced its corporate tax rate in the past 20 years.”
To address the issue, Portman suggested cutting the corporate tax rate to 25 percent. He noted this would spur job creation and bolster revenues. He also wants the loopholes for preferred companies closed and the tax code simplified. His third point is to create a more competitive international tax structure.
“Roughly 80 percent of the world’s purchasing power and 95 percent of its consumers are beyond U.S. borders, and American companies must be able to compete for these customers. As such, the U.S. should adopt a territorial-type tax system that taxes active business income only where it’s earned. In addition, we should implement clear, enforceable rules to prevent sheltering income in low-tax countries,” reasoned Portman.