Tim Worstall is a senior fellow at the Adam Smith Institute in London and a contributor to Forbes. He is on Twitter.

Tax inversions do not change the taxation of profits made inside America one whit, not by one red cent. Under law, AbbVie, Walgreens, or any other company would still pay exactly the same amount of U.S. taxes on their profits made in the U.S. after an inversion as they were before. That part of the debate is simply a red herring.

The broader problem is the corporate income tax.

Taxing economic activity means that we will have less economic activity.

It is hidden taxation: everyone thinks that someone else is paying it, not them, which is why politicians love it so much of course. It's a grossly inefficient tax. Taxing economic activity means that we will have less economic activity: the economy will be smaller than it would be without tax.

We do, however, need government and thus, we need taxes to pay for it. But we should raise that revenue at the least cost in reduced economic activity. The deadweight cost, that lost activity, is higher for capital and corporate taxation than it is for income taxation, higher than for consumption and all higher than property taxation. Optimal taxation theory tells us that we should therefore eliminate capital and corporate taxation and move to a progressive consumption tax and perhaps a land value tax.

Abolishing corporate taxation has nothing to do with allowing U.S. companies to compete with foreigners: it's about making America itself richer while still funding government.



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