Curtis Dubay on Barack Obama’s speech Thursday that reportedly decried …

… corporate inversions. That is the process whereby a U.S. business merges with a foreign business and moves the new joint business’s headquarters to the foreign country. Inversions have been a hot topic recently because well-known businesses such as Walgreens, Pfizer, and Medtronic have been looking to engage in the process.

The president, like others before him, decried this practice because he believes it displays a lack of patriotism. However, inversions have nothing to do with love of country. They are all about U.S. businesses keeping up with their global competition.

When a U.S. business inverts it continues paying the same amount of tax it always has on its U.S. income. Any business, no matter where headquartered, pays the 35 percent U.S. corporate tax rate – which is the highest corporate tax rate in the world — on income earned within our borders.

The policy causing all the problems is the extra tax the U.S. levies on the income its businesses earn in foreign countries. This is known as a worldwide tax system. The U.S. is the only industrialized country that taxes the foreign earnings of its businesses.

The worldwide system makes it difficult for U.S. businesses to compete with their international brethren because those businesses don’t face an extra layer of tax when they invest in a growing new market. The extra tax U.S. businesses face makes certain investments unattractive for U.S. businesses that remain attractive to their competitors. …

If U.S. businesses don’t do anything to remedy this disparity, their relative profitability will fall as they take a pass on more and more growth opportunities their foreign competitors eagerly chase. Eventually this would put the viability of their businesses in jeopardy.

The preferred liberal fix to this problem is to make it harder for businesses to invert by requiring foreign shareholders to own a larger portion of a merged business (50 percent compared to 20 percent under current law) before the headquarters can be moved from the U.S. This change would only make matters worse.

Business will still find ways to remain competitive, such as by selling themselves outright to foreign competition. Raising the threshold could backfire by sending the message to businesses that the U.S. tax system will remain uncompetitive and could become more hostile to investment, causing more to want to flee our shores.

The only fix for this problem is tax reform that reduces the corporate tax rate and stops taxing the foreign income of U.S. businesses. Instead of demonizing U.S. businesses that are trying to do best by their shareholders, employees, and customers, Obama would better serve the country by spending his time working with Congress to make tax reform a reality.

The first reaction of Obama’s criticizing anyone’s supposed lack of patriotism should be: Pot, meet kettle. The second reaction is that since Obama has spent his entire term in office demonizing business and the successful, it could certainly be said that the worst thing in the American economy right now is Obama’s fat mouth.

The Cato Institute spells it out in graphics:

The other parallel is to businesses that move their corporate headquarters from states with bad tax or legal structures to states with business-friendly tax and legal structures. That started here with with Kimberly–Clark’s corporate headquarters move from Neenah to Dallas in the 1980s, and has continued with businesses incorporating in such states as Delaware and South Dakota.

Rep. Dale Kooyenga (R–Brookfield) pointed out last week that once the Illinois income surtax expires later this year, Illinois’ income tax rate of 3.7 percent will be half as high as Wisconsin’s highest income tax bracket, and higher than Wisconsin’s lowest tax bracket. Democrats refuse to admit that Wisconsin’s taxes are too high, but not only are Wisconsin’s corporate income taxes — some of the highest in the world when combined with the federal corporate tax rate — too high, Wisconsin’s personal income tax rates are too high too.