At a Heritage Foundation panel discussion this week, CBPP Senior Tax Policy Analyst Chye-Ching Huang debunked myths surrounding the recent wave of corporate “inversions,” in which U.S.-based firms move their headquarters overseas for tax purposes, and explained why policymakers should take strong action against them, explaining:
People think that there is a simple story that is driving inversions . . . that there are companies that are changing their tax headquarters to escape the highest statutory rate in the OECD [Organisation for Economic Co-operation and Development]. But that simple story is not what is happening. . . . The problem is really about U.S. multinationals and other multinationals gaming the tax system in the U.S. and all throughout the OECD so that they can claim that all of their profits are in tax havens.
Other panelists included CNBC Senior Economics Contributor Larry Kudlow, Heritage Chief Economist Stephen Moore, and Walter J. Gavin, Retired Vice Chairman of Emerson Electric.
As we’ve explained (see here and here for examples), the effective tax rate that U.S. multinationals face on their worldwide income is well below the 35 percent top U.S. statutory rate. A big reason why is that multinationals report vast amounts of their income as coming from tax havens where they pay little or no tax. Adopting a foreign headquarters could make it easier for multinationals to claim that their profits are made offshore and to use tax havens to avoid taxes anywhere.