Steven Rattner: Don't Tax Corporations, Tax Shareholders

Saturday, 03 May 2014 10:58 AM

By Dan Weil

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The recent wave of corporate merger activity partly stems from U.S. companies' efforts to lower their tax burden, says Steven Rattner, chairman of Willett Advisors, which manages former New York Mayor Michael Bloomberg’s personal assets.

U.S. companies are seeking to buy foreign ones and then change their legal residence to an overseas address, thus avoiding U.S. corporate taxes that can total up to 35 percent. Since 2008, about 25 U.S. companies have done these "inversions," Rattner, a former Obama administration official, writes in The New York Times.

"These days, tax avoidance feels like a full-fledged business strategy, with American citizens as the losers," he says. They lose because of the shrinking tax revenue.

So what should be done?

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"At a minimum, Congress should embrace the president’s recent proposal to both restrict the use of inversions and tax a merged company as an American company if it is managed in the United States and has substantial business here," Rattner writes.

A more radical idea "would be to scrap our unworkable corporate tax system altogether [ending corporate taxes] and instead tax shareholders, first by eliminating low tax rates on capital gains and dividends." Higher taxes on the wealthy are part of the idea too.

The growth of inversions may indeed lead to policy changes. "The more deals get done, the more attention and scrutiny there is," Jennifer DiNucci, a mergers-and-acquisitions lawyer with Cooley LLP, told The Wall Street Journal.

"The topic of inversions is a lightning rod for the broader debate about U.S. tax policy."

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