Money Goes Where It Is Treated Best

August 30, 2012

Further confirmation of this came in a Wall Street Journal article about corporate behavior.  Companies are moving their corporate headquarters outside the US because they can save money—tens of millions of dollars—by incorporating overseas.  Here’s just one example:

Eaton, a 101-year-old Cleveland-based maker of components and electrical equipment, announced in May that it would acquire Cooper Industries PLC, another electrical-equipment maker that had moved to Bermuda in 2002 and then to Ireland in 2009. It plans to maintain factories, offices and other operations in the U.S. while moving its place of incorporation—for now—to the office of an Irish law firm in downtown Dublin.

When Eaton announced the deal, it emphasized the synergies the two companies would generate. It also told analysts that the tax benefits would save the company about $160 million a year, beginning next year.

I added the bold.  Money talks.  $160 million yells pretty loudly.

Ironically, the goal of the 2004 legislation was to promote companies staying in the US.  However, due to the poor tax treatment in the US relative to many other countries, it has not worked. The WSJ points out:

Since 2009, at least 10 U.S. public companies have moved their incorporation address abroad or announced plans to do so, including six in the last year or so, according to a Wall Street Journal analysis of company filings and statements. That’s up from just a handful from 2004 through 2008.

If the goal of corporations is to make money for their shareholders, of course they are going to take advantage of favorable tax treatment.  If we want businesses—and thus jobs—here in the US, then we have to be competitive.  Money really does go where it is treated best.

Incentives are a pretty important part of economics—some would say the most important part.  It’s critical to get incentives right if we want the US economy to continue to be the strongest in the world.

Source: The Murninghan Post

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