Commentary by Eric Peterson, a policy analyst at Americans for Prosperity.
While the American economy continues to sputter along, Ireland is expected is to see GDP growth of nearly 5 percent when all is tallied up in 2014. Not surprisingly, American companies are eager to take advantage of this economic boom – which is why they are seeking to acquire (and be acquired) at record rates. The latest of these mergers had Ireland-based Actavis purchasing Botox maker Allergan.
Like any well-reasoned $66 billion decision, multiple factors played into this blockbuster pharmaceutical deal – with one key factor being the favorable tax code enjoyed by all Irish companies.
Rather than pay the nearly 40 percent tax rate imposed by the federal and state governments on Allergan here in the U.S., the new merged companies will be taxed at a much more favorable Irish rate of around 12.5 percent.
Although this seems like a loss for America, the merger will allow Allergan to repatriate overseas earnings for American investment without paying both taxes on where the money was earned and the American tax rate. Currently almost $2 trillion in foreign profits is parked overseas because companies are understandably wary of handing over a big chunk of that cash to America’s punitive “tax man” as the price of investing it back home.
Although this merger is a boon to the future of Allergan; Secretary of the Treasury, Jack Lew, recently released new rules in attempt to use the long arm of Uncle Sam to block these deals. In other words, rather than working to replicate a more competitive tax code like Ireland’s, Lew and the Obama administration are seeking to hold companies hostage.
(Image via Ken Teegardin/SeniorLiving.org/flickr)
Fortunately there is some light at the end of the tunnel.
Both Democrats and Republicans have publicly stated a desire to work on tax reform in the 114th Congress. Hopefully as part of that effort, lawmakers will work to end special carve outs for specific industries and lower the overall corporate tax rate in a way that brings America in line with the rest of the developed world.
It’s not the luck of the Irish that Ireland has brought in billions of dollars in foreign investment in 2014 alone. Rather Ireland understands that creating a tax system which encourages growth innovation and investment is the way to economic prosperity – not stifling and outdated tax codes.
America should once again become a destination economy for new growth and new investment, and a flatter, fairer corporate tax is the quickest way to reach that pot of gold.
America’s tax code, like Allergan customers, needs a face lift.
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