Written and Published by Han Institute, July 25, 2014

My Comments, and a Solution to Counter Tax Inversions

Recently, there have been many business acquisitions known as inversions. In an inversion, a large U.S. corporation buys a smaller foreign corporation, but on paper the U.S. corporation becomes a subsidiary of the foreign corporation. This is done for only one reason: to avoid paying U.S. taxes. By exploiting this tax loophole, billions of dollars of tax revenue are being lost.

Lawmakers of both parties agree that the tax law should change to close this loophole, but differ on whether this should be made retroactive to May 2014, when many multibillion-dollar deals took place. Conservatives say that U.S. corporate taxes are too high, and should be lowered from 35% to 25%.

My comments:

The prerequisite for the corporation to lower the tax rate should be to reform the U.S. exorbitant healthcare costs and unfair system of cheap foreign labor superseding domestic workers.

1) The cost of healthcare should be lowered by making it easier for foreign healthcare workers such as doctors and nurses to immigrate, which would lower labor costs. This will alleviate the middle class¡¯ burden of paying for healthcare, and reduce the government¡¯s cost of Medicare and Medicaid.

2) At the same time, make it more difficult for foreign high-tech workers to be hired for low-paying jobs at companies such as LinkedIn or Facebook. High-tech jobs should be advertised to U.S. career centers and universities first, to encourage employment of domestic high-tech professionals.

3) Corporate tax should be reformed to eliminate loopholes, and only then should rates be lowered. Warren Buffett famously made the point that he pays lower tax rates than his secretary, and one of the reasons Mitt Romney lost the election was that he admitted he only paid 14% in taxes, while the average company pays 35%.

The corporate tax should be lowered, but only after major tax loopholes are closed, healthcare costs are under control, and immigration is reformed, so that the government still has tax revenue, and the American people have a sound and fair system, with all classes in society compatible, not just executives.

Let us not forget that billionaires were not born naturally, they have a good system and environment, and with their ingenious efforts, they hit it big. It is the result of the congenial system, never in a void.

Return to main page