Business Roundtable, a group composed of big-firm executives, has prepared a new study to prove that the US tax code spurs foreign takeovers of American firms. According to the group, the trend in federal tax rate could lead to job losses and other negative outcomes.
According to the study conducted by Ernst and Young, the US has lost $179 billion in assets over the last 10 years on mergers and acquisitions, partly because of relatively high corporate tax rate of 35 percent. The study recommended that cutting corporate tax down to 25 percent would lead to a gain of $590 billion in assets, a net shift of $769 billion.
John Engler, the president of the Business Roundtable, asserted that policymakers’ failure to address tax code issues has restricted US business investment and job creation. Engler, on behalf of other top executives, called for changes in the tax system to reverse movement of business assets to foreign owners.
More than 25,000 cross-border mergers between 2004 and 2013 were analyzed in the study to identify loopholes in taxation policies. The study blamed the US tax code for charging businesses on income earned abroad, saying companies can defer tax payments until they bring profits home.
Based on the study, half of cross-border mergers were valued at $29 million and below, indicating that small mergers are more damaging than big-name mergers.
The Business Roundtable, together with other business groups, has been lobbying for tax reforms for several years, insisting that a 25 percent corporate tax rate would level the playing field for both foreign and American firms. However, it admitted that other factors such as the recent financial crisis may also be blamed.
Meanwhile, some experts asserted that the issue is more complex than what the Business Roundtable study suggested. There is no telling how much harm the US tax system has done for American firms. For example, American firms withhold offshore profits to avoid the hefty tax rate in the US and end up spending $2 trillion to buy foreign businesses.
Eric Toder, co-director of the Tax Policy Center, said that the US tax code ” encourages mergers in both directions”, and that in the long haul, the system will “probably encouraging a situation where more companies than otherwise would be the case [are] foreign based”.