While granting tax breaks to big corporations goes against the grain of American populism, so should ceding the economic advantage of lower corporate rates to every other major industrialized country. And given the huge sums involved, it’s not hard to see why American companies operating abroad actively shop for low-tax jurisdictions.
Take corporate “inversions,” which many lawmakers deride as un-American. In an inversion, a U.S. multinational company is acquired by a company domiciled in a low-tax country, such as Ireland or Canada, where top rates are 12.5% and 26.7%, respectively. Profits earned in the U.S. continue to be taxed at the domestic rate, while those made elsewhere are subject to lower rates.
Democrats have cynically sought to outlaw inversions, rather than lower domestic tax rates, which would solve the problem by eliminating the reason companies seek out other residences. In effect, it’s a form of protectionism, and it doesn’t work.
Another tax-avoidance strategy is to locate subsidiaries in low-tax jurisdictions and to keep accumulated profits offshore; hence the roughly $2 trillion held abroad by U.S. corporations that are loath to repatriate this money because it would be subject to high U.S. taxes. Here again, a lower rate would bring revenue back to the U.S., rather than stranding it abroad.