The U.S. Supreme Court keeps telling us that corporations are people, but some of these “people” have a curious sense of patriotism.

They enjoy making money in the United States. They have a strong market here in a society where their rights and their businesses are protected by the police, the courts and the military. They are served by a vast network of government-built and maintained roads, water supplies and schools, and their lives benefit from an array of government inspections, regulations and assistance.

Yet these people don’t want to pay taxes to the United States of America. They’d rather acquire a company in a country with a lower tax rate so they can shield their incomes from U.S. taxes.

Technically, merging and reincorporating abroad to avoid taxes is called an inversion. Bluntly, it’s called a disgrace. U.S. companies should push for tax reform rather than departing on paper and handing their tax burden to American taxpayers.

The latest to seek refuge from Uncle Sam is Salix Pharmaceuticals of Raleigh, N.C. The company announced last month that it is merging with an Italian drug company and will re-incorporate in Ireland, allowing Salix eventually to reduce its long-term tax rate from the high 30 percent range to the low 20 percent range. Salix, founded in 1989, makes drugs to treat gastrointestinal disorders. It has flourished — its revenue this year is expected to exceed $1 billion for the first time — and it will remain here while its reduced tax payments go to Ireland.

CEO Carolyn Logan said the company’s loyalty is to its shareholders.

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“We feel like we have to make the best decisions within the current law to provide value for our shareholders and grow our business in as efficient and productive a way as possible,” Logan said. “And we believe that this transaction goes a long way toward enabling us to do that. So we believe we have every right to do the transaction, and in fact we’re very excited about it.”

In saving green on the Emerald Isle, Salix will join Ingersoll Rand, a fellow North Carolina-based company that also claims an Irish status for U.S. tax purposes. Drills made by Ingersoll Rand were used to carve Mount Rushmore, but the company has no patriotic commitment to paying its fair share in taxes despite having received federal contracts worth hundreds of millions of dollars.

In a cover story this month headlined “Positively un-American tax dodges,” Fortune magazine railed against the idea of companies profiting immensely from their presence in the United States but shifting their addresses abroad. By Fortune’s count, 28 seemingly American companies on the S&P 500 stock index are incorporated in places like Ireland and Switzerland to avoid higher U.S. tax rates. More are getting ready to do the same.

Apologists for this corporate shell game say it’s a maneuver forced on them by excessive corporate taxes in the United States. The U.S. corporate tax rate of 35 percent is one of the highest in the world, but most companies use various exemptions, shelters and accounting methods to pay far less than the full rate. A General Accounting Office report based on 2010 tax returns found that the average effective tax rate for profitable U.S. corporations was 13 percent. Indeed, a 2008 GAO report on corporate tax liabilities found that nearly 55 percent of all large U.S.-controlled corporations reported no federal tax liability in at least one year between 1998 and 2005.

Rather than being forced to flee burdensome U.S. taxation, corporations are paying less and less of the cost of running the nation that nurtures their success. Fortune reports that tax cuts and tax avoidance “have pushed down the corporate share of the nation’s tax receipts — from 30 percent of all federal revenue in the mid-1950s to 6.6 percent in 2009.”

Solving the problem over the long term requires eliminating loopholes, broadening the tax base and lowering rates to more competitive levels.

One idea advanced by District Economics Group, a tax consultancy in Washington, D.C., is to treat multinational corporations the way most states treat multistate companies: by apportioning global profits according to percentage of sales made in each country, and taxing just the U.S. amount. It will take that sort of sweeping change to rid the tax code of the incentive to turn a U.S. company into something it’s not.

Salix’s CEO might be “excited” about the company’s new foreign address, but lawmakers and taxpayers ought to be indignant. If corporations are going to have the rights of real people, they should at least pay their taxes like true citizens.

Editorial by the Raleigh News & Observer


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