As companies flee U.S. taxes, RATE Coalition pushes reform

HARRISBURG, Pa. — Walgreen’s drew protests this summer as the nation’s largest drug store chain mulled whether to move its headquarters overseas to avoid paying billions in corporate taxes.

The practice is known as inversion and has been drawing more attention as companies consider reorganizing across the Atlantic to shield their cash under lower tax rates. One Pennsylvania company, Mylan, has already announced plans to reincorporate in the Netherlands.

Walgreen’s eventually dropped the plan, but not before President Obama labeled inversion as an “unpatriotic tax loophole,” according to USA Today, and he has mentioned the possibility of taking action to shut down the strategy.

Jim Pinkerton, who co-chairs the Reforming America’s Taxes Equitably Coalition, sees another solution: Lower the United States’ corporate tax rate.

Pinkerton dropped by the capital Wednesday for an off-the-record policy briefing for state officials and business leaders, and afterward he shared his thoughts about inversion and tax reform in an interview with PA Independent.

Here are a few takeaways from the chat:

America’s tax rate is high – really high

Though it should be noted a plethora of tax credits and other breaks are available that help corporations pay less in taxes, the U.S. imposes a 35 percent corporate tax rate, the highest among developed nations.

RATE is advocating a simplification of the tax code coupled with a 10 percent reduction to the corporate tax rate. Pinkerton believes an “overwhelming majority” of corporations would stay in the U.S. if it had a more competitive tax rate.

“There will always be tax competition. We don’t deny that,” Pinkerton said. “But we think 25 would be such a shot in the arm, such a tonic.”

Lower taxes doesn’t always mean less money

Pinkerton made that point by citing the Laffer Curve, which explores the relationship between tax rates and revenue.

It shows that two tax rates can generate the same amount of revenue — for example, a 0 percent tax rate will generate the same as a 100 percent tax rate because nobody would pay taxes on one rate and nobody would work on the other, Pinkerton said.

The curve suggests raising tax rates can raise revenue, but there’s a point at which revenue will decline because the tax becomes too burdensome.

“We’ve always believed in low rates that are broad-based,” Pinkerton said, “and we just keep plugging away, and I think the country is kind of catching up to us now.”

Pennsylvania gets a double whammy

Besides the national rate, corporations in Pennsylvania are subject to the state’s 9.99 percent corporate net income tax, the highest in the country.

That can be a challenge as Pennsylvania competes with Texas, Florida and other states, Pinkerton said.

Still, his main message was about the U.S. corporate tax rate. The country should not build in a “moral hazard” that can pressure companies to leave.

That can lead to “heartbreaking” situations in which companies built in the United States start looking for a new home, Pinkerton said.

“There’s just a lot of pressure on companies to take drastic action, which we would prefer not to see happen,” Pinkerton said. “That’s why we support corporate tax reform as an alternative to corporate flight.”