The headlines are screaming that “tax inversions” are becoming an epidemic. The truth, however, is that this practice, seemingly becoming common, is much more complicated and perhaps not quite as harmful to the American economy as many might have you believe.
“We are not talking about a large number of companies,” Envestnet’s Zachary Karabell points out. And while many companies may be keeping their profits off-shore that’s a different (though admittedly related) issue entirely.
The real problem, Karabell believes, is our outdated and complicated tax code. “We have a dysfunctional political system and a tax code that doesn’t make sense,” he argues, “because while it’s often said ‘oh these companies pay 35% in taxes’ as we know from Burger King (BKW) they’re actually paying more like 27% anyway.” He adds that going to Canada or some other low-tax locale has less to do with huge savings and more to do with simpler tax law.
Regardless of the reasoning, it’s important to note that while the media would have you believe tax inversions are a big economic contagion Karabell says that’s simply not the case.
“It’s not like 200 of the S&P 500 companies are suddenly just deciding to go abroad. They are keeping a lot of cash abroad and I think we should be focusing on that, focusing on the repatriation of it.”
And there’s the rub. Sure, it would be great to bring that cash back to American shores but Washington isn’t exactly in a position to work effectively enough to make that happen. “We could have a more constructive political class,” Karabell says, “that could actually think about what is positive for American workers, the American economy, American businesses but we’re gonna be holding our breath for a really long time.”
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