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US Encourages Corporations To Engage In M&A "Inversion" Bubble, Then Shames Them By Demanding "Economic Patriotism"

Tyler Durden's picture




 

Call it yet another unintended consequence of pervasive government intervention.

On one hand, the US has the highest corporate tax rate in the world:

On the other, the US tax code is such that it not only allows but encourages firms, who have sufficient resources, to find global loopholes such as the "Double Irish With A Dutch Sandwich."

On the third hand, as a result of QE and ZIRP, stock prices have never been higher, which means it has never been a more opportune time for companies to use their record high stock price to acquire targets, which coupled with record cheap debt has led to an M&A bubble unlike any seen previously, with total M&A pace in 2014 set to surpass previous records and with deal consideration paid in stock, at 23%, the highest in, well, ever.

With all these permissive conditions for US corporations to take advantage of the raging M&A bubble, is there any surprise that not a day passes without some US company announcing a "tax-inversion" deal meant to bypass US taxes entirely? Apparently, if you are the government, there is a lot of surprise.

So much so in fact that as WSJ reported last night, the Obama administration itself joined the growing cries over U.S. companies reincorporating overseas for tax purposes, urging lawmakers to pass legislation to limit the moves.

In a letter to leaders of the congressional tax-writing committees, Treasury Secretary Jacob Lew said lawmakers "should enact legislation immediately…to shut down this abuse of our tax system." The letter was reviewed by The Wall Street Journal on Tuesday night.

Just this week, two U.S.-based drug firms— AbbVie Inc. ABBV +0.11% and Mylan Inc. MYL +1.81% —moved ahead with plans for foreign mergers that would allow them to move overseas and reduce their tax rates. They would join a growing list of about 50 U.S. firms that have reincorporated overseas through inversion in the last 10 years, most of them since 2008.

 

The trend appears to have accelerated in recent months, as Congress has come up short in an effort to pass a comprehensive tax-code rewrite that would address corporate concerns and make the U.S. system more business-friendly.

In the meantime, while Congressmen have been calling for a halt to the kind of activity that corporations clearly believe is in their best interest, not all are convinced that the government should meddle yet again in what would clearly be yet another forced capital misallocation:

As more firms are moving to reincorporate in countries with tax advantages, lawmakers remain divided over Washington's response. So far, Republicans as well as some influential Democrats in Congress have favored limiting inversions through a comprehensive overhaul. Some of those lawmakers believe a quick fix could worsen U.S. companies' position.

 

"I don't want to be part of legislation that ramps up the competitive disadvantage of being a U.S.-based company or makes U.S.-based companies more attractive targets for foreign takeovers," Sen. Orrin Hatch of Utah, the top Republican on the Senate Finance Committee, said in a recent statement.

 

Finance Committee Chairman Ron Wyden (D., Ore.) also hasn't pushed for a quick fix. In a Wall Street Journal op-ed in May, he said that "this loophole must be plugged." But he indicated that he is still hopeful for a comprehensive tax rewrite that would limit inversions on a retroactive basis.

Which brings us to today's topic: this is how the US Treasury Secretary has decided to approach the issue: with a heartfelt appeal to US coroprations to do not what is right for their shareholders but to be, drumroll, be "economically patriotic."

In the Treasury letter, Mr. Lew criticized corporations that move overseas to avoid the relatively high U.S. corporate tax rate, while continuing to operate from U.S. soil and benefiting from U.S. legal protections, infrastructure and basic research.

 

"What we need as a nation is a new sense of economic patriotism, where we all rise or fall together," Mr. Lew wrote. "We should not be providing support for corporations that seek to shift their profits overseas to avoid paying their fair share of taxes."

To summarize: the US government first allows corporations (or "people" per SCOTUS) to not only inflate their stock to record highs (via a debt funded, stock buyback scramble facilitated by the Fed's ZIRP bubble), the same companies then engage in the only logical activity that makes sense for the bottom line, one which leaves no tax payments for the US whatsoever, and then the US hopes corporations will show some "economic patriotism." In other words, shame them into adding even more capital misallocation on top what is already the worst case of central-planning since the fall of the USSR. Add this to the "less cynicism, more hope" recent appeal by Obama, and at this rate US GDP will explode courtesy of soaring healthcare fees as everyone ends up in psychotherapy from the resulting cognitive bias of doing the one thing the US government allows, permits and encourages, the very same thing that the same government subsequently shames everyone into having done in the first place!

 

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Wed, 07/16/2014 - 09:36 | 4962314 besnook
besnook's picture

we are all hos now.

Wed, 07/16/2014 - 09:46 | 4962352 GetZeeGold
GetZeeGold's picture

 

 

When tyranny comes to the U.S will it be wrapped in a flag and carrying a cross....

 

I should point out some quotes exchange fascism for tyranny.....like that's any better.

Wed, 07/16/2014 - 10:03 | 4962432 Buckaroo Banzai
Buckaroo Banzai's picture

Who knew it would be wrapped in a fag and carrying a Koran up its ass?

Wed, 07/16/2014 - 12:26 | 4962953 espirit
espirit's picture

Perhaps "Tora, Tora, Tora" should be interpreted as "Sell, Sell, Sell."

Wed, 07/16/2014 - 10:07 | 4962438 Liberal
Liberal's picture

Yes, transgender rights and equality are the issues of our time, as are gay marriage and abortion. Tranny rights in particular...Wait. Did you say "tyranny"? What's that?

Wed, 07/16/2014 - 10:53 | 4962593 GooseShtepping Moron
GooseShtepping Moron's picture

That is probably the most inapposite quote I've ever heard. Those who take up their cross today are decisively in the minority and are not able, nevermind willing, to tyrannize anyone. And as for the flag, who really cares about that anymore? The number of people who actually believe in America as a propositional nation is about on par with CNBC's viewership.

In point of fact, when tyranny came to America it was carrying a grudge against WASPs and wrapped in a panoply of Warren Court platitudes. It derived its right to exist directly from the classical liberal traditions embodied in the US Constitution. This is one among many reasons why I tell disaffected Americans today, be they 'conservatives' or 'libertarians,' not to look to the Constitution for assistance. Everything they despise is entirely Constitutional in the broad sense; even Obamacare is "Constitutional" now.

Conseratives like to believe that if the Constitution was construed correctly, it would automatically generate legislative and judicial outcomes in accordance with their own philosophy. They could not be more wrong about that. It is a sad and tragic bias that they have which prevents them from moving forward.

The future of conservatism must consist in anti-federalism. The United States was created by liberals for liberals, was deliberately designed to chain down conservative forces; and it has been working out this destiny in ever greater and more expansive reforms since day one. When conservatives finally realize that the "historic American nation" which they claim to cherish was never the intent of the founders but merely their own present ideal, then perhaps the will acquire the good conscience enough to make real and substantive change. Until then, the liberals will always be able to set the terms of the debate and drag the country inexorably towards the Left.

Wed, 07/16/2014 - 15:19 | 4963886 TeethVillage88s
TeethVillage88s's picture

You might be right here. Your point is worth thinking about and matches some of my thoughts.

We all seem uneducated & unsophisticated in terms of knowing both history and accepting a common sense base of conservative principals.

Founding Fathers were Liberal since they were over throwing Tradition, Patriarchy, and Monarchy. Natural Rights & Individual Rights were Liberal compared to King or Priest as gods chosen representative.

And all governments & businesses have to have conservative ideas of banking, accounting, auditing, and financial ratings. Progressive ideas should not have to be exclusive from conservative principals. But politics is full of distortions. And today we have Bill Clinton & Barak Obama who seem to have embraced corporatism and right wing militarism including "dirty wars".

As you say Big Government, Federal Government is the problem and has corrupted our State & County governments.

How did we get Tyranny? Looks like big money, federal money, deficit spending on military & MIC, Lobbying, huge election campaign money, money as a determinant for Elections, public relations programs, propaganda & advertising, Big Media controlled by few, the end of Investigative Journalism & Free Press.

If we want one primary document as a conservative principal the US Constitution worked well for a long time - till Congress stopped working, was completely corrupted by the big money.

But also our agency & even Institutions have been corrupted: revolving door from government to private industry & vice versa provides insider networks, Regulation Capture, salting the Regulatory Agencies with Industry Insiders,... and we have allowed laws & regulations to get so complcated (more and more each year) that no one man can know everything or understand the whole system.

Reforms would have to Stream line and Simplify regulations.

Like the Flat Income tax Idea OR No Personal Income tax. We have whole industries of people that don't make things or add value to the USA: Tax Preparation, tax Lobby, Tax Law, Accounting, Financial Law, Financial Management, and complicated and therefore large auditing industry.

Sure fancy Financial Management channels money to a few executives and tricky deals. But in the USA most people have lost their savings & retirement from fancy financial dealings/schemes.

Simplify & Standardize Financial Instruments.

Everything needs reforms and must be based on Conservative Banking & Accounting Rules (GAAP). Hiding companies and activities through shell companies and shadow banking just helped a few get rich and put us all at risk while making the USA a Financial Laughing Stock in the Global Market.

Wed, 07/16/2014 - 12:20 | 4962913 Emergency Ward
Emergency Ward's picture

I think they traded the cross for a copy of the Patriot Act.  Fascism, tyranny, either or both.

Wed, 07/16/2014 - 09:49 | 4962376 BandGap
BandGap's picture

Now?

The confusion is all by design. Our leaders take both sides of the argument in order to incur none of the blame. They sue instead of impeach.  And they make who they choose rich.

Would you eat a bowl of government shit for a 10 million dollar bonus? Sure you would.

Wed, 07/16/2014 - 09:36 | 4962317 Zeptemberalevin
Zeptemberalevin's picture

jack lew is one hell of a salesman

Wed, 07/16/2014 - 09:42 | 4962341 LawsofPhysics
LawsofPhysics's picture

"jack lew is one hell of an arsonist"  - fixed.  Notice how (like all liberals) he avoids talking about "accountability" these days.

 

Acountability was all the rage in 2008.

 

 

Wed, 07/16/2014 - 09:52 | 4962386 BandGap
BandGap's picture

Accountability has now become "tweeting" instead of doing. In this fucked up world where you can say shit and move the markets, well, anything is possible.....for a short enough time.

Wed, 07/16/2014 - 10:25 | 4962505 HardAssets
HardAssets's picture

Check out the guys bio.

Typical politico type.  Lots of time in political positions in government. Some time at Citi (betting on a housing crash).  CFR membership.  Likely a lucrative position or speakiing fees after this gig.

Wed, 07/16/2014 - 09:42 | 4962344 Buckaroo Banzai
Buckaroo Banzai's picture

If by "salesman" you mean "lying sack of shit", then yes.

Wed, 07/16/2014 - 09:41 | 4962332 LawsofPhysics
LawsofPhysics's picture

I smell desparation.   

Wed, 07/16/2014 - 09:41 | 4962334 Buckaroo Banzai
Buckaroo Banzai's picture

Wait, are you suggesting that our Federal Government is completely psychotic??

Wed, 07/16/2014 - 09:42 | 4962345 toady
toady's picture

Yeah... Shame and patriotism may work on red America, maybe a little on blue America, but definitely WILL NOT WORK on corporate America.

Wed, 07/16/2014 - 09:45 | 4962357 Buckaroo Banzai
Buckaroo Banzai's picture

I have no doubt that Mr. Lack Jew is entirely aware of that fact. He wouldn't have gotten where he is today without having fully embraced that nugget of reality.

Wed, 07/16/2014 - 10:09 | 4962450 HardAssets
HardAssets's picture

The merger of corporate and state interests to the detriment of everyone else is fascism.

That's why any 'reform' only ends up further benefiting large corporate interests, further restricts their smaller competitors.  All their talk about such 'reform' is nothing but a smoke screen.

The fascist govt/big corporate rulers of the country destroyed the value of the dollar over the years through their central bank. Thus, the increase in wages needed to (somewhat) keep up with this long term theft made US workers less competitive and their jobs were off shored to slave labor countries overseas. (A loss of 97% of the value of the dollar since the Fed was enacted a century ago.)  This off-shoring was done in the name of 'free enterprise/capitalism' when the very foundation of the system itself - the money system - is a criminal bankster monopoly with fiat scrip forced on the people ultimately at the point of a gun. The nature of that fascist system has been hidden from the common American people; it is also a fraud.

Wed, 07/16/2014 - 10:18 | 4962480 Urban Redneck
Urban Redneck's picture

I laid off all my US employees and moved out... now I pay a combined maximum 22.5% Federal, Cantonal, Communal, and Church corporate tax ("corporate persons" have to pick their faith here and pay the piper), but it's still a fuck-ton cheaper (tax wise) than the USSA.

Wed, 07/16/2014 - 09:44 | 4962353 Billy Sol Estes
Billy Sol Estes's picture

"where we all rise or fall together,"

wait... what?

Wed, 07/16/2014 - 09:47 | 4962367 jay28elle
jay28elle's picture

...hitting the bong a little too much of late.

Wed, 07/16/2014 - 09:47 | 4962369 SoDamnMad
SoDamnMad's picture

Look at RIG.   Get in trouble over the New Horizon disaster and then bolt for Switzerland while still doing so much drilling in the US and off-shore.  How many companies have "offices" in Ireland without so much as a bit of manufacturing and sometimes not a permanent employee there.

Last and not least were all the 30 meter yatchts moored in the harbor in Turkey when I vacationed with "Wilmington, DE" stenciled on the stern. I did live in Wilmington years ago so I spit on every one which makes the "legal" as to having been in US waters.

Wed, 07/16/2014 - 09:56 | 4962406 yogibear
yogibear's picture

Chicago is in charge of Washington. What do you expect?

Illinois is the state of criminal politicians.

Wed, 07/16/2014 - 09:57 | 4962413 MASTER OF UNIVERSE
MASTER OF UNIVERSE's picture

Psychotherapy is too expensive and was replaced with
pharmacological manipulation [symptom substitution] back
in the 70s.

EAT POPCORN - DRINK COKE - EAT PROZAC - EAT POPCORN -DRINK C

Wed, 07/16/2014 - 10:09 | 4962449 The Blank Stare
The Blank Stare's picture

"What we need as a nation is a new sense of economic patriotism, where we all rise or fall together," Mr. Lew wrote. "We should not be providing support for corporations that seek to shift their profits overseas to avoid paying their fair share of taxes."

But on the other hand, as long as my buds get their kabuki money before November, well....let it go! Let it go! Turn away and slam the door!

Wed, 07/16/2014 - 12:46 | 4963079 Otto Zitte
Otto Zitte's picture

sham

Wed, 07/16/2014 - 12:52 | 4963112 kurt
kurt's picture

I believe this is a pack of lies wrapped in bullshit with a creamy center.

Lew's a pure bred CREEP!

Wed, 07/16/2014 - 14:51 | 4963741 TeethVillage88s
TeethVillage88s's picture

Speaking of Taxes interesting looking at recovery from the Recession between Individual Tax Revue & Corporate Tax Revenue. I may not be as well read as others. Maybe someone can explain how Individual Taxes took a Dive, then recovered but Corporate Taxes Did not???

Corporate Income Taxes Receipts 1998 = $ 188.7 Billion
Corporate Income Taxes Receipts 2002 = $ 148.0 Billion (Recession)
Corporate Income Taxes Receipts 2006 = $ 353.9 Billion
Corporate Income Taxes Receipts 2007 = $ 370.2 Billion
Corporate Income Taxes Receipts 2008 = $ 304.3 Billion
Corporate Income Taxes Receipts 2009 = $ 138.2 Billion (Recession)
Corporate Income Taxes Receipts 2012 = $ 242.3 Billion
Corporate Income Taxes Receipts 2013 = $ 273.5 Billion

Individual Income Taxes Receipts 1998 = $ 828.6 Billion
Individual Income Taxes Receipts 2002 = $ 858.3 Billion (Recession)
Individual Income Taxes Receipts 2006 = $1.044 Trillion
Individual Income Taxes Receipts 2007 = $1.163 Trillion
Individual Income Taxes Receipts 2008 = $1.146 Trillion
Individual Income Taxes Receipts 2009 = $ .915.3 Trillion (Recession)
Individual Income Taxes Receipts 2012 = $1.132 Trillion
Individual Income Taxes Receipts 2013 = $1.316 Trillion

http://research.stlouisfed.org/fred2/series/CP (corporate profits, 1-1-2014)
http://research.stlouisfed.org/fred2/series/DIVIDEND

Corporate Taxes end of 2013 = 273.5 Billion (Treasury data end of Fiscal year Sept 2013)
Corporate Profit end of 2013 = $1.9045 Trillion

$273.5/1,904,5 = 14.4% Corporate Tax

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