12:00 AM, Jun 28, 2014 • By IRWIN M. STELZER
To meteorologists, an inversion is a deviation from the normal change of an atmospheric property. It can lead to pollution and adverse health effects. To Wall Street dealmakers, and now to most boards of directors, an inversion is a cross-border merger that allows the buyer to reincorporate in a more tax-friendly jurisdiction. It can lead to pollution of the hot air emitted in the Congress, and adverse effects on the health of the U.S. Treasury. And most of all, to big tax savings. The merging parties pay lip service to the idea that such deals produce companies that are efficient at more than reducing their tax bills, but that is because they want to appear skilled industrial strategists rather than the tax avoiders (not evaders) they really and legally are.
This tactic received maximum publicity during Pfizer’s failed attempt to take over Britain’s AstraZenica, with the result that no board of directors of an American company can fail to explore the possibility of a tax inversion: do it or have a very good reason to offer to shareholders for not doing it. That’s because our corporate tax rate, at 35 percent, is the highest in the world (not counting countries where de facto tax payments, also known as bribes, are not included in the official rate). And because America uniquely does not tax profits earned overseas until they are brought home. So do a tax inversion deal, lower your effective tax rate to increase shareholder returns, and bring cash home at advantageous rates. Very tempting, although for companies that can use a variety of features in the complex U.S. tax code to keep their effective rate—what they actually pay—below the 35 percent rate, less attractive than for others.
This tactic is enormously popular in the medical and pharmaceutical industries, the latter arguably facing strategic as well as tax incentives to consolidate: patents are expiring on profitable drugs and the belief is widespread that consolidating research efforts will result in savings that more than offset the lost competitive goad to progress. The most recent large inversion saw Meditronic, a maker of medical devices, merge with Ireland’s Covidien. All of Meditronic’s key staff will remain in Minneapolis and Covidien’s in Mansfield, Massachusetts. But since Covidien is already domiciled in Ireland (corporate tax rate 12.5 percent), the merged entity will be able to use some of Meditronic’s estimated $20 billion cash pile to pay off debt and finance the acquisition without incurring the 35 percent U.S. repatriation tax, with no inconvenience to any of its top employees.
Dealmakers and corporate boards are in a frenzy lest they miss out on this deal of the century—there is almost free money on the table, waiting for inverters to pocket it if they act before the government closes what many politicians see as a loophole. Indeed, it was just such “execution risk” AstraZeneca used as one of its reasons for rejecting its suitor. “The question is what the government is going to do about this, and how quickly they’re going to shut the loophole down,” says Gordon Hamilton, head of health care mergers at Cavendish Corporate Finance. Senate Finance Committee chairman Ron Wyden, a Democrat from Oregon, has his own answer. He told reporters that he would not “sit idly by” while companies “figure out how to hot-wire a way to tap into a loophole” that he wants to close retroactive to May 8 (assuming retroactive legislation is not unconstitutional).
Wyden’s colleagues know that the relatively high U.S. corporate rate creates difficulties for those of our companies that compete in globalized markets. Some even know, as Rob Portman, their very sensible Republican colleague from Ohio, recently reported, “Every single one of our major foreign competitors has reduced its corporate rate in the past 20 years.” But they know three other things.
First, it is impossible to pull on one loose thread in the tax without unravelling the entire code: better to wait for comprehensive tax reform. Second, and most important, congressional elections are only four months away. Third, confidence in Congress now stands at an all-time low of 11 percent (compare the military, 82 percent; small business 67 percent, television news 23 percent), in part because voters feel legislators have done a great deal for Wall Street—bank bailouts—and nothing to stop foreclosures on Main Street. To cut corporate rates so soon after imposing on individuals one of the largest tax increases they have been asked to bear since World War II—hidden in Obamacare but biting nevertheless—might be the straw that breaks the back of any reelection campaign already weighted down by the president’s poor approval ratings.
5:03 PM, Jun 19, 2014 • By JIM SWIFT
In January during his State of the Union Address, President Obama unveiled his new myRA program. “Let’s do more to help Americans save for retirement. Today, most workers don’t have a pension. A Social Security check often isn’t enough on its own. And while the stock market has doubled over the last five years, that doesn’t help folks who don’t have 401(k)s. That’s why ... I will direct the Treasury to create a new way for working Americans to start their own retirement savings: myRA,” he explained.
Obama’s inexplicable admiration for China’s infrastructure policy. Mar 24, 2014, Vol. 19, No. 27 • By YING MA
President Obama likes to promote his domestic policy agenda by highlighting economic competition from China. In particular, he has repeatedly pointed to China’s massive infrastructure investments to tout his proposals for infrastructure spending in America.
September 15, 2008.11:58 AM, Sep 19, 2013 • By JONATHAN V. LAST
Sunday was September 15. It's an important anniversary, because it's the day that gave us President Barack Obama.
The European Union’s coming attack on the Anglo-Saxon financial sector Jul 1, 2013, Vol. 18, No. 40 • By ANDREW STUTTAFORD
Take a visit to the cyber-belly of the beast, to a website run by the European Commission, the EU’s bureaucratic core, and you will be told that “the financial sector was a major cause of the [economic] crisis and received substantial government support.” Soon it will be payback time, in the form of Europe’s new Financial Transaction Tax (FTT), set to be levied at a rate of 0.1 percent on equity and debt transactions, and 0.01 percent on trades in derivatives. It will ensure that the financial sector “makes a fair and substantial contribution to public finances.”
9:52 AM, Apr 27, 2013 • By JONATHAN SCHANZER
On Sunday, the leading experts on terrorism finance in the Middle East and North Africa will convene for a five-day conference. The Financial Action Task Force is essentially the United Nations for combating terror finance, and MENAFATF ranks among its most important regional bodies. So why is the group meeting, in all places, in Khartoum?
12:43 PM, Apr 8, 2013 • By GEOFFREY NORMAN
For all the talk of "changing the culture in Washington," it appears to be business as usual ... only more so.
Revises downward GDP forecast.4:02 PM, Mar 20, 2013 • By WHITNEY BLAKE
In a press conference today, the Federal Reserve announced it will keep interest rates low and leave QE3 unchanged, continuing to buy $85 billion a month in bonds to prop up the economy.
We need a better argument against the massive federal debtFeb 11, 2013, Vol. 18, No. 21 • By MEGHAN CLYNE
Politicians are not known for originality. In their public speech, most cling to the security of clichéd stock phrases the way toddlers hold fast to threadbare blankets.
9:04 AM, Jan 26, 2013 • By DANIEL HALPER
President Barack Obama pledged this morning in his weekly radio address to continue to crackdown on "irresponsible behavior."
"Here in America, we know the free market is the greatest force for economic progress the world has ever known. But we also know the free market works best for everyone when we have smart, commonsense rules in place to prevent irresponsible behavior," Obama began.
2:01 PM, Oct 19, 2012 • By DANIEL HALPER
Earlier today, the Obama campaign pushed around a story that they claimed proved Mitt Romney "was against the auto bailout...but personally [benefited] from it."
2:40 PM, Sep 5, 2012 • By JEFFREY H. ANDERSON
Always looking "forward," President Obama has asked Bill Clinton—who was elected to the presidency 20 years ago—to speak tonight and suggest to the American people (whether explicitly or implicitly) that this is really a choice between Clinton and George W. Bush, rather than between Obama and Mitt Romney. If you're Obama, this beats running on your record.
3:00 PM, Jul 24, 2012 • By DANIEL HALPER
According to the pool report, "joining POTUS on the flight from San Fran was Penny Pritzker, the campaign's finance chair four years ago. Jay Carney said she was in the neighborhood."
Must be nice to have been a big bundler for President Obama, and pretty convenient to get a lift on Air Force One when the president just so happens to be in the neighborhood.