Is Congress Contemplating QE4?

July 21st Weekly Market Update

This past Sunday marked the 45th anniversary of the Apollo 11 moon landing, when American astronauts Neil Armstrong and Buzz Aldrin became the first to set foot on the moon. If they had stayed there, what would their
tax rate have been?

The number of U.S. corporations seeking a “tax inversion” seems to be soaring to the moon. An inversion is when a U.S. company acquires another based in a country that has a lower corporate tax rate and moves its tax jurisdiction to that country in order to pay a lower corporate tax rate on profits made outside the United States — profits made inside the United States are still taxed normally.

Taxes paid by U.S. corporations as a percent of gross domestic product (GDP) have lagged the growth in pre-tax profits. This is due, in part, to more and more income being earned overseas where corporate tax rates are much lower. With an increasing percentage of S&P 500 profits coming from outside the United States, more companies are considering a tax inversion. Companies as varied as Charlotte, NC-based banana producer Chiquita; Deerfield, IL-based drugstore chain Walgreens; and Minneapolis, MN-based medical device-maker Medtronic — among others — have all sought to move their tax jurisdiction overseas this year.

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