This hurts. A lot.
Johnson Controls Inc (JCI.N), a U.S. maker of car batteries and heating and ventilation equipment, agreed to acquire Ireland-based peer Tyco International Plc (TYC.N) in a $16.5 billion deal that will lower its tax bill, the companies said on Monday.
By moving its headquarters to Cork, Ireland, Johnson Controls would become the latest major U.S. company to carry out a so-called tax-inversion after drug giant Pfizer Inc (PFE.N) structured such a deal with Irish peer Allergan Plc (AGN.N) last November.
While the tax benefits are not as profound as is the case of Pfizer’s deal with Allergan, the news was enough to stir controversy among politicians in a U.S. presidential election year.
[…]
The deal will create savings of at least $500 million in the first three years, the companies said. They expect to save an additional $150 million a year through tax synergies.
I’ll ignore the statist reactions from the politicians in the article for now. Johnson Controls is (was) Wisconsin’s largest publicly-traded company and they are making this decision to save tax money. It is a perfectly rational business decision in the interests of Johnson Controls’ owners. While the move doesn’t have an immediate impact on Wisconsin since they are leaving their operations based in the state, long term it could have a dramatic impact.
Herein you see the stupidity of this tax policy. By having such a high corporate tax rate, liberals think that it means that they will collect more taxes. In reality, what it does it cost justify businesses doing things like inversions in order to minimize their tax exposure. So in this case, instead of America receiving the lesser tax revenue that would be generated by a lower corporate tax rate, they will receive nothing. Nada. Zero.
The United States’ excessively high corporate tax rate has just cost us another great American company… now a great Irish company.
This “non-substantive” Donald Trump person has been highlighting “inversions” as major problem in literally every single GOP debate going back to August 6th in Cleveland.
Is the answer lowering the tax rate? Maybe, but if we lower to 15% and Ireland goes to 5% we still lose.
So now we will have a huge local company over time bail for other cities and countries and take their high paying HQ and management jobs with them, In the meantime the crazily irresponsible CEO Alex Molinaroli probably will pocket $50-$100 million for screwing over Milwaukee.
Add in the fact because we have no anitrust enforcement, people who want to create startups to compete against JCI (and provide new jobs and create new wealth opportunities for people) will face massive burdens to entry and scale issues.
As I said, I do not have the answers to all this stuff. But you can certainly see why Trump and Sanders are drawing supporters.
Nifty “just so” story, but check the facts. Google “us corporate tax rate history” and look at the pictures.
Why curse US policy? It’s just a race to see which country has the most tax-avoiding deal for companies not in their borders. If not Ireland, some other country who thought they could benefit from ten smaller slices of pie from beyond their borders instead of three slices of their own pie.
You realize if Johnson Controls would have bailed in January 2006 instead of January 2016, the whole story would have been about Jim Doyle and how it was all his fault.
Hopefully Mayor Barrett can get a large contribution from Molinaroli and his golden parachute towards that streetcar Alex thought essential for Milwaukee.
Why not? Barrett can direct the donation to an “issue advocacy” group that can keep the transaction secret.