Last week, AbbVie (symbol ABBV) announced it will change its corporate citizenship to the United Kingdom along with news of its acquisition of Shire (SHPG), a specialty biopharmaceutical company headquartered in Ireland. AbbVie is the research part split off in 2013 from Abbott Laboratories, the large cap Chicago based healthcare company founded in 1888.
This is just the most recent American corporation to move its headquarters across an ocean. Should we hold these corporate robber barons all prisoner, nationalize them, or what? What is behind this blatant anti-American practice of late? (In case you don’t know me well, my sarcasm is showing.)
According to the corporate tax information found at KPMG’s website, www.kpmg.com/global/en/services/tax/tax-tools-and-resources/, the US taxes its home corporations at one of the highest marginal rates in the world, 35 percent. KPMG actually lists it as 40 percent including state and local taxes. Ireland’s rate for active operational income is 12.5.
Other countries with rates of 35 percent or higher include Angola, Argentina, Japan, Malta, Sudan, and United Arab Emirates—not exactly places with the welcome mat out. Japan has been in economic atrophy for several decades now.
Our tax code is unusual in another respect. Most countries tax companies only on the profit made from business done within their borders. The US instead taxes a domestic corporation on its profits made everywhere in the world. But we tax a foreign corporation only upon the profit it earns in connection with its revenue inside the US. This is a dramatic difference.
For example, suppose you are one of the thousands of Jackson Countians that drives west each day to Kansas to work. You pay Kansas income tax by having it withheld from your paycheck. Your marginal rate ranges from 3 to 4.9 percent on that income.
Suppose that your home state of Missouri, with its marginal rates between 2 and 6 percent, said something like the following. It is nice that you found work elsewhere, but you live here. Therefore we will require you to pay your full tax on your Kansas income as well as your interest, dividends, rents and whatever income you actually earn in Missouri.
Would it take you very long to move to Kansas if you like your work? Would you feel unpatriotic as you waved goodbye to the Show Me state? I think you would probably instead shake the dust off your feet as you crossed state line and say, How could Missouri be so stupid?
The good news is that our states are smarter than that. But our national government is not. I can assure you that most US corporate executives are as patriotic as you are, but they did not get their present level of responsibility by being stupid. Instead they are collectively crying out for a comprehensive tax reform that would be more simple and fair to everyone. I predict that if and when Congress and the next President get their acts together to pass such a tax code, some who have moved headquarters elsewhere will move back to the 50 states and no one else would even be tempted.
But as it is, some leaders will rant and rave about a false sense of patriotism instead of solving the stupidity of the present situation. When you hear them, please think about whether you would voluntarily pay both Kansas and Missouri on your income earned in your non-domicile state. Some are leaving both and heading for Texas and Florida for a zero income tax. Shun them!