For your sake, I hope and pray that you have better things to do than read about the nuances of corporate tax policy. It holds less intrigue than, say, the average John Grisham novel. However, U.S. corporate tax levels are vitally important to the future of our economy, which, thanks to President Obama, has been in the shitter for 6 plus years. Check out the front page headline in today’s USA Today.
But, I’m sure that is George Bush’s fault.
Interestingly, corporate taxes are the one area Obama’s teleprompter once actually told him needed to be reformed. But, he apparently got too busy chasing climate change goblins to actually do anything about it (or about foreign policy, but I digress).
Several weeks ago, one of the largest and most successful medical device companies in the United States, Medtronic, moved its tax domicile to Ireland by announcing its merger with Covidien. Several years earlier, in a very shrewd tax maneuver, Covidien had already moved its tax home to Ireland, where corporate tax rates are 12.5% vs. 35% in the United States. The practical implication of the merger is that the billions of dollars Medtronic currently holds overseas will NEVER be repatriated to the U.S. and they will continue to keep their vast foreign profits out of the U.S. That has two very dire implications for the U.S. economy. First, it means that money can never be used here to build new plants, create new jobs, or otherwise grow our economy. Second, it means the U.S. government will get none of it. That is, the effective U.S. tax rate is zero because 0% of any number is still, drum roll please, zero. I know that’s complex math for this administration, but that’s what happens when you overtax parties that have options. They leave. If you’re interested in how this plays out with personal state income taxes, look at the exodus from places like California, Maryland, New York, and New Jersey to places like Texas and Florida.
Then came this announcement in last week’s issue of Fierce Biotech (I’m sure you’ve all read that by now):
Auxilium eyes a Canadian biotech for a tax-cutting merger
Auxilium Pharmaceuticals is merging with Canadian biotech QLT in an all-stock deal designed to both expand its pipeline and slash its corporate tax rate.
Under the agreement, Auxilium will meld into QLT, which will retain its British Columbia incorporation, and become “New Auxilium.”
The new company will keep Auxilium’s management intact and hang on to its Pennsylvania headquarters. But, thanks to a 24% Canadian stake, the merged entity would pay corporate taxes in Canada, where the rate is 15%, instead of in the U.S., where it’s 35%. In its announcement, Auxilium said the deal’s closure depends in part on its lawyers signing off that the new company “should not be treated as a U.S. domestic corporation for U.S. federal income tax purposes.”
This one is really astonishing because (a) notwithstanding the comment about added pipeline for Auxilium, this deal is all about taxes (QLT is essentially a shell company with very little promising in the pipeline) and (b) Canada is socialist. We’re losing companies to socialist countries! So, Obama tax policy has chased yet another company out of the U.S. from a tax perspective, proving once again that you can’t build a successful economy with a teleprompter. You need actual policies that encourage businesses to stay in the U.S. and pay U.S. taxes at rates that are competitive with the rest of the world. Until then, the Canadians and Irish must love us for sending all our corporate tax dollars to them.