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Comment by leereeves | Hacker News Reader

> Congressional leaders agree that passing legislation according to [the Schumer-Portman] framework would stop inversions

Until another country offers an even better tax deal to attract multi-national corporations.

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That's not how things actually work. If it was, every nation but one would lose all of their corporations to that one country with the lowest rate.

The decline in the benefit of a lower corporate tax rate accelerates as you go lower. For example, going from 35% to 25% might reduce your corporate inversions by 75%. Going from 35% to 10% might reduce your inversions by 85%.

The challenge is to find the level where you gain the most as a nation overall. If you have something to offer other than just the low tax rate, it will never make sense to chase toward zero. The closer you get to that ideal level, the more other factors come into play to your nation's benefit in regards to keeping companies. The US has vast benefits for a company like Pfizer that would compensate for N% additional tax rate.

I agree with you in general but there is another thing you're missing: the double taxation discourages investing in new businesses in the United States.

If a VC is looking at two very similar businesses selling internationally, with one seated in the US where their profits will be doubly taxed, and the other running in a different country where profits are not subject to this, then ceteris paribus, they should expect investment in the non-US company to be more profitable.

ceteris paribus

i.e. unicorns and rainbows. You're essentially just responding to every response to your posts with "yeah but more assumptions make it true!"

No, it's not unicorns and rainbows. My argument does not rely on the existence of such ceteris paribus firms, my argument is that this will affect decisions to invest on the margin. Maybe right now, the margin is deciding between a great company in the US versus a crap company in Ireland, but the one in Ireland looks more attractive due to tax reasons. This policy change would push it back in the right direction. The point is that because there is a margin somewhere, it must be shifted by these policy decisions.

I don't see myself relying on strong assumptions. I am laying out some simplified models to explain the core mechanisms of what's going on.

Not really - there are benefits to being based in the US. If everyone just chased the lowest taxed jurisdictions then every corporation would be based in a tax haven.

Corporations aren't repatriating the money they hold offshore. I can see why the US wants a piece of that pie, but they currently aren't getting any pie and are losing piemakers. Taking a smaller cut of something whilst also having that something flow back into the US is surely a good thing.

> Corporations aren't repatriating the money they hold offshore.

Indirectly, they are: "Nearly Half of So-Called “Offshore” Funds Already in the United States"

Earlier this year, a survey was sent to 27 U.S. multinational corporations and found they held more than half a trillion dollars in tax-deferred foreign earnings at the end of FY2010. The survey also found that 46% of those foreign earnings – almost $250 billion – was maintained in U.S. bank accounts or invested in U.S. assets such as U.S. Treasuries, U.S. stocks other than their own, U.S. bonds, or U.S. mutual funds.

https://www.hsgac.senate.gov/subcommittees/investigations/me...

Yes, an important but never-mentioned distinction is that "offshore" is basically an accounting designation, and that money is not somehow prevented from being put to work in the US.

Correct. That's why 0% is preferable to 8%, and Schumer-Portman should be thought of as a medium term stop-gap measure. 0% is the only stable rate. Eventually that will happen, but for the time being 8% will work as other revenue adjustments are made.

0% is only the stable rate in theory (and only if you ignore every other business consideration in the theory). It will never work like that in reality, where countries often have dramatic benefits to offer that compensate for paying more than 0%.

All nations would have to go to zero in the category of what other benefits they have to offer (their sum value proposition outside of their tax rate). That's not going to happen. Those benefits add up to being worth a certain amount of tax depending on the nation and the corporation's specific context. If this wasn't true, every relevant corporation would have flooded out of the US (or Germany) long ago, seeking much lower rates.

I agree to an extent, but nations are also competing on all of these other factors that make them more attractive places to do business. Some costly health care surcharge in France could be reduced as easily as the foreign profit taxation in the US.

Also, it only takes one Ireland to drive the entire world toward 0%.

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