On Tuesday Pfizer Inc., one of America's iconic pharmaceutical companies, announced that it is dropping it's bid to merge with Dublin-based Allergan.
The $150 billion deal was killed apparently by changes in tax laws announced by the Obama administration a few hours before.
Pfizer must now pay up to $400 million to Allergan for expenses associated with the cancelled wedding. Shareholders in both companies are the big losers. So are patients hoping for new miracle cures for diseases.
Obama wanted to stop the deal because it would have made Pfizer an Irish company. Ireland's corporate tax is 12.5 percent versus a 35 percent rate charged in the USA.
Pfizer was only one of the latest major American company that had announced it is packing up and moving to a foreign country because of lower tax rates in India, Mexico, Canada, Ireland, and almost anywhere else on the globe. First it was Burger King, then Medtronics, and then Pfizer, Johnson Controls and on and on. Can Disney and Mickey Mouse be far behind?
Many more Fortune 500 companies are planning to leave in the months ahead - and it's questionable whether these new rules will prevent it from happening.
Obama complained that these companies are moving to avoid paying their "fair share of the taxes." His new inversion rules will only make America less competitive by effectively preventing companies like Pfizer from ever leaving. This only makes it less likely that technology, manufacturing, drug, and financial services company are formed in America to begin with. If you can't ever leave, you don't come in the first place.
Inversions are prima facie evidence that tax rates make a huge difference in a global economy.
There was a much simpler and less punitive solution here. Mr. President: why not just cut the U.S. tax rate to make America tax competitive? Shouldn't it be a wake up call when socialist Sweden and France have lower corporate taxes than we do?
As one company after another lines up to leave, shouldn't we all be able to agree on the lunacy of the Bernie Sanders plan to raise tax rates to 70 percent or more? It that happened there'd be such a stampede of businesses and capital out of the U.S. that Mexico and Canada would start complaining about all the illegal immigrants coming in from America looking for jobs! Even Hillary Clinton, who wants a 45 percent tax rate, would accelerate the flight of businesses.
Our corporate tax rate is almost 40 percent and many countries in the rest of the world are closer to 20 percent. Every year other nations around the world cut their tax rates some more. Japan was the latest tax cutter.
Barack Obama's speech Tuesday called for lower tax rates and fewer loopholes. Great idea. He says he wants to get rid of the army of "lawyers and lobbyists" who "exploit loopholes" in the tax code. Another great idea.
Republicans like Paul Ryan, now the House Speaker, have wanted tax reform for years.
But Obama's tax reform plan is always punitive, and would raise taxes on companies making them even more noncompetitive. His tax bills have added loopholes and raised tax rates.
Small businesses saw their highest tax rate rise from 35 to 41 percent under Obama.
He raised corporate capital gains and dividend taxes from 15 percent to 23.8 percent -- a near 60 percent hike. So why your business locate here?
The best way to stimulate growth is to cut the corporate tax rate to 15 or 20 percent right now. Then let companies bring back the $2 trillion stored in offshore accounts and pay a 5 percent penalty tax. This could raise $100 billion and bring repatriated capital back to the states where the money will be invested by American businesses.
Obama's right to want to keep American companies in the USA so jobs are created here. But we've tried the stick approach for 20 years and it has led to one of the most masochistic tax systems on the globe.
Why not do what Reagan and JFK did? Cut tax rates and the businesses and jobs will come back home.