Wednesday, June 18, 2014

Incentives Matter: Creating Tax Exiles

High personal and corporate tax rates incentivize wealthy individuals and corporations to engage in tax avoidance behaviors (conversely, low tax rates incentivize wealthy individuals and corporations to be more productive and profit-driven, a situation that benefits all of us).  One such form of avoidance behavior is moving organizational headquarters out of the USA, a situation becoming more common with very wealthy citizens and large corporations.  From an educational post over the blog, Cato-at-Liberty:
The U.S. government is driving some of its most productive citizens abroad.  The only beneficiaries are countries such as Singapore and Switzerland, which offer sanctuary to Americans fleeing avaricious Uncle Sam.
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Just 231 people gave up their citizenship in 2008.  Last year the number was 2999.  The first three months of 2014 was 1001, up from 679 for the first quarter of last year. Tax flight is not an option for most people.  However, the rich have more choices internationally.  And they increasingly are telling Uncle Sam goodbye.

So are big corporations, such as Pfizer, which is seeking to buy the British pharmaceutical company AstraZeneca.  The acquisition would allow Pfizer to move its headquarters to the United Kingdom, which employs a “territorial” tax system, with taxes collected only where the income is earned, in contrast to Washington’s worldwide levy. 

About 50 firms have moved their headquarters over the last three decades, half of them since 2008.