The primary mission of any business or large corporation is to prosper from its transactions. An ancillary and unspoken goal that accompanies this objective is to see an increase in profits so that the company may return substantial dividends to their shareholders or investors. However, business is competitive, sales are uncertain, and growth is often hard to sustain – thus making a business prosperous an onerous task for many, including large corporations. So, if a company’s goal of making money and returning dividends to its investors is not adequately met by its sales or transactions, its next and most obvious choice to increase access to capital is by reducing liabilities through its taxes. With that and the old adage of “only death and taxes are certain” in mind, why would a company not do everything in its power to avoid paying an avoidably high tax rate on what are otherwise unavoidable taxes? The answer, which is becoming more apparent in a globalized economy, is that they are.
The Organization for Economic Cooperation and Development (OECD) calculates that the United States has the highest corporate tax rate in the industrialized world at an alarming 39.1%. This percentage is calculated using a metric combining the statutory state and federal rates. The other 33 members of the OECD have an average corporate tax rate of 24.8%. Considering the global average for OECD countries is 24.8%, and the neighbors to the north of the United States are currently at 26.3%, it begs the question: do we blame U.S. companies for leaving the United States to find more favorable tax rates? The rational answer is a simple ‘no.’ If a company wants to save roughly 14% a year in taxes as a basic business plan by moving to Canada, then the United States should not strike grievance with the company, but rather the intolerable tax climate that forced them to leave and take money out of the government’s pocket.
A recent article by Gerrad Grant, entitled “The Aftermath of a King Renouncing his Citizenship” focuses on corporate inversion – or leaving the U.S. to find a more tax friendly country. His article specifically narrows on the recent departure of Burger King to Canada following its merger with Tim Hortons. His article does not take a specific stance on whether or not leaving the U.S. is the right choice, but rather justifies the logic behind corporate leadership in doing so. Likewise, he highlights the failure in U.S. tax policy to identify its own shortcomings and adapt to create a more business-friendly tax environment to encourage corporations to stay in the U.S. and pay corporate taxes here. As Grant points out, if Congress does not fix this problem in the immediate future the U.S. can only expect to lose more corporate giants, jobs, and tax revenue as we sit idly watching the rest of the world befriend big business through its friendly tax structures.