Feeling The Benefits of Inversion?

It’s good for bankers, what about you?

This week the word in play on Wall Street is inversion, a high-sounding name for the transfer tax game: An American company buys a foreign company in a country with low corporate taxes, like Ireland. Few people are transferred, but a pile of earnings is transferred to the new “tax domicile,” like Dublin. Profitability increases thanks to a form of legalized tax evasion.

Who benefits from inversion? Wall Street and the banking community are wildly in love with inversion because it increases profits and has fathered a new Inversion Consulting Industry led by Goldman Sachs, JPMorgan Chase, Morgan Stanley and Citigroup—each making millions in fees—and not long ago bailed out by American consumers for financial misdeeds. They now guide clients down the inversion path through the tax thickets to friendly, low-tax places far from American shores.

Who is endangered by inversion? The bankers are too big to be bothered—and fees for inversion help them get bigger. Stockholders and hedge fund folks like it. As inversion grows, several billion dollars in US corporate taxes will be avoided. (The current estimate is around $20 billion over the next 10 years.) So far, no sanctions by our federal government.

What harm is there to ordinary consumers? When the inversion game reduces corporate income taxes, there is collateral damage to most Americans: the deficit grows, services have to be cut (sorry, Iraq and Afghan vets, sacrifices must be made), and ordinary consumers pay more in taxes.

What can be done? The President objected this week. A few in congress mentioned inversion, then made ready to leave for the August recess. Do not despair: Wikipedia may update its definition of inversion.

Want to know more? Read

Andrew Ross Serkin, Banks Cash In on Mergers Intended to Elude Taxes, The New York Times Business Day, July 29, 2014, pages B1, 5.

Andrew Ward, Pfizer refuses to rule out tax inversion deals, The Financial Times Companies & Markets, July 30, 2014, page 14.


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