”Taxes, after all, are the dues that we pay for the privilege of membership in an organized society.” — Franklin Roosevelt

American corporate CEOs who don’t object to paying the dues granting them the privilege of country club memberships — possibly because their employer covers that perk, which often is a tax-deductible expense — are increasingly taking radical objection to paying their fair share of dues for the privilege of profiting from doing business in the world’s biggest economy.

The U.S. Congress calculates that in the past decade, 47 major U.S. corporations have ducked U.S. taxes on their profits through an unpatriotic but legal manoeuvre called “inversion,” with the bulk of “inverters” popping up in recent times.

The practice of inverting is just the proverbial tip of the iceberg in legal corporate tax avoidance. It happens when a U.S. company buys a smaller offshore one located in a jurisdiction with a lower corporate tax rate than America’s 35 per cent, and taking on the nationality of that lower-tax jurisdiction while continuing to be run from Chicago, New York or Fort Wayne, Ind.

The “inverter” tax dodgers include household names like Carnival Corp., world’s biggest cruise line operator (head office: Miami; tax residence: Panama); Ingersoll Rand PLC, a huge North Carolina-based maker of heavy equipment (tax residence: Ireland); Nabors Industries Ltd. of Houston, a leading oil and gas drilling company (tax residence: Bermuda); Eaton PLC, the venerable Cleveland-based maker of circuit breakers, truck transmissions and other industrial equipment (tax residence: Ireland), and Garmin Ltd. of Kansas, a leading maker of global positioning systems (GPS) whose tax residence is Switzerland.

The ironies abound here. For engineering and technical talent, Ingersoll Rand continues to recruit heavily from a U.S. armed forces it pays not a dime to finance. Garmin’s GPS systems were invented by the U.S. government, and the contract that first got the firm off the ground was from the U.S. Army. The CEO of Eaton told his hometown City Club of Cleveland in a speech that the cure for the U.S. deficit is to cut tax loopholes. That Eaton’s own 2013 profits of $1.8 billion were taxed at the Irish rate of 12.5 per cent is not, in his mind at least, a deficit-bloating loophole.

There is now a considerable backlash against the inverters. The tipping point came recently with the planned but ultimately failed mega-merger of New York-based Pfizer Inc. and the U.K’s AstraZeneca PLC to create the world’s largest Big Pharma combine, which for tax purposes would have been domiciled in Britain with its 20 per cent corporate tax rate. And this month, Walgreen Co., the leading U.S. drugstore chain, merged with its British counterpart Alliance Boots PLC but dropped plans to take up British tax residence for a combined entity that would have continued to be run from Walgreen’s head office in suburban Chicago.

On the campaign trail ahead of this fall’s Congressional elections, Barack Obama, the U.S. president, has laid into the inverters as “corporate deserters” lacking “economic patriotism.” The U.S. Treasury Secretary warned this week that the Obama administration is prepared to act unilaterally, without Congress, to rein in the ambit of inverting companies in what is still their U.S. home market. Before its change of heart on inverting, Walgreen got a nasty letter from Dick Durbin, senior U.S. Senator from the firm’s home state of Illinois, warning that Walgreen might find its customers are “deeply patriotic and will not support Walgreen’s decision to turn its back on the United States.”

A contrite Walgreen, after abandoning the idea of taking up tax residency abroad, said this week that it is “mindful of the ongoing public reaction to a potential inversion and Walgreen’s unique role as an iconic American consumer retail company with a major portion of its revenues derived from government-funded reimbursement.”

It’s true that America’s 35 per cent corporate tax rate is the highest in the industrialized world. (Canada’s rate has dropped to 15 per cent from 22 per cent in the Stephen Harper years.) It’s also true that Corporate America’s share of the financial burden of running the U.S. has steadily dropped from a peak of about 25 per cent in the 1950s to a current 7 per cent or so.

It’s also true that an estimated $2 trillion in U.S. corporate profits are parked offshore, safe from the Internal Revenue Service (IRS). And that the actual tax rate, after loopholes, for selected industries from utilities to aerospace to industrial machinery ranged from 2.8 per cent to 19.7 per cent between 2008 and 2012, according to the U.S.-based Citizens for Tax Justice and the Institute on Taxation and Economic Policy.

During that time, General Electric Co., Boeing Co., Corning Inc. and Verizon Communications Inc. were among dozens of major corporations that paid zero taxes. Still others, like Apple Inc., Microsoft Corp., Google Inc. and drug maker Abbott Laboratories, have stashed profits offshore to escape the IRS.

We have to hope that either Obama or bipartisan critics of inversion in Congress put a halt to “inverters,” since the practice is contagious. All of the firms named in this article are multinationals that compete with Canadian companies, which are at a competitive disadvantage to them.

We’ve been down this road before, with the ill-advised “income trusts.” As giant Canadian firms like Telus Corp. declared their interest in converting to income trusts – whose tax contributions to the federal treasury would practically evaporate – rivals like Bell Canada were compelled to follow suit. Before that could happen – that is, before all of Corporate Canada could offload its tax responsibilities onto the rest of us – Ottawa blessedly scrapped the short-lived and fiscally lunatic income-trust gimmick.

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There is no empirical evidence that corporate tax cuts promote the things that tax-cut champions in business claim – namely, economic growth, job creation, and gains in household income. “The idea that lowering the corporate tax rate will lead to more investment is fundamentally wrong,” Joseph Stiglitz, Nobel laureate economist and former chief economist of the World Bank, has said.

It was after Harper put Canada in the ranks of the lowest-tax jurisdictions – and forfeited revenues needed to keep this country running – that Caterpillar Inc. killed 470 jobs in London, Ont. by relocating one of the world’s biggest locomotive manufacturing operations from Southwestern Ontario to the U.S. (with its much higher tax rate) and to Mexico. CEOs hungry for short-term profit and share-price gains do seek lower taxes, certainly. But what they crave most is punishingly lower wages, in a race to the bottom. The fillip of stiffing the taxman is just one galling aspect of wanting to have it all.

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