Do U.S. tax laws place U.S.-domiciled companies at a competitive disadvantage vis-à-vis foreign firms? In an influential 2014 article, Edward Kleinbard (Southern California) argued that the answer is no: “there is no credible evidence,” Kleinbard concluded, “that U.S. firms are at a fundamental international business competitive disadvantage under current law.” Now, Michael Knoll responds to Kleinbard’s article and arrives at a contrasting conclusion: while acknowledging the limits of existing empirical work, Knoll says that “the stronger case would seem to be that U.S.-domiciled corporations are often tax-disadvantaged relative to their non-U.S. rivals.”
Both authors agree that the competitiveness question has important implications for the debate over corporate inversions. Inversion defenders often argue that U.S.-headquartered multinationals must be allowed to shed their U.S. domicile so that they can compete on even terms with foreign firms. In Kleinbard’s view, this narrative is a “fable”: competitiveness concerns cannot justify inversions. Consequently, Kleinbard concludes that the U.S. Treasury and Congress should crack down on inversion transactions. In Knoll’s view, “improving competitiveness remains a strong reason for U.S.-domiciled companies to invert,” and “policies intended to curb inversions that ignore this state of affairs are likely to . . . produce adverse consequences.”
My own view, to lay my cards on the table at the outset, is that Kleinbard and Knoll are both right.
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