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Bringing It Back Home

An increasing number of American companies are making plans to shift their headquarters to Europe, in order to escape the United States’ uniquely unfavorable corporate tax rules. So what should US policymakers do?

CAMBRIDGE – An increasing number of American companies are making plans to shift their headquarters to Europe. These so-called “inversions” would reduce these companies’ total tax bill by allowing them to escape from the United States’ uniquely unfavorable corporate tax rules. So what should US policymakers do?

President Barack Obama’s administration is seeking to block corporate inversion through administrative measures that may not hold up in US courts. It would be far better to develop a bipartisan legislative plan aimed at removing the temptation to shift corporate headquarters in the first place. Such a plan, if attractive to US multinational corporations, could result in a shift in employment and production to the US and higher tax revenue.

Under current law, US corporate profits are taxed at a rate of 35% – the highest rate among OECD countries, where the average is 25%. That tax is paid on profits earned in the US and on repatriated profits earned by US companies’ foreign subsidiaries.

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