MN governor cheers relocation of major corporation HQ to … Ireland
posted at 2:41 pm on June 18, 2014 by Ed Morrissey
When Rick Perry stumps for businesses to relocate, at least he’s cheering for his home state of Texas as the final destination. In Minnesota, we have the unusual experience of having a governor laud a corporation for moving its headquarters out of the state — and out of the country. Medtronic, a leading manufacturer of medical devices, acquired an Irish firm in the same sector, but will move its corporate headquarters to Ireland rather than transfer Covidien’s executive operations to Minnesota (via Gary Gross):
“As I look at the project as governor of Minnesota, this is a good deal for the people of our state,” the governor said on Monday.
Dayton said he was personally assured by Medtronic’s CEO Omar Ishrak that, while the company would move its headquarters to Ireland, it would keep its operational headquarters in Minnesota. The result would mean that not only would the company keep its existing 8,000 employees in the state, it would also add an additional 1,000 Minnesota workers in the coming years.
Opponents of the income tax hikes the DFL governor pushed have laid blame on Dayton for the company’s decision to move its headquarters to Ireland. Dayton said that blame is ill-founded.
“Minnesota taxes were not an issue in their decision, Minnesota taxes (on Medtronic) will remain essentially the same,” he said.
Two different Republican contenders for governor, Marty Seifert and Scott Honour, both blasted Dayton’s support for the move. Honour called it a “slap in the face,” and evidence that “tax and regulatory policies are chasing away Minnesota’s best companies.” Seifert blamed both ObamaCare — which has a tax on medical devices — and Dayton’s economic policies for the decision, calling it “a sad day” for Minnesota’s economy.
Honour’s probably the closest to the truth. If Medtronic is indeed going to add 1,000 jobs, it’s not because they’re transferring the corporate flag to Ireland, but either regardless or in spite of the move. ObamaCare might have an impact on hiring at Medtronic that’s outsized from other sectors, but moving the corporate HQ to Ireland won’t change that. The medical device tax applies to their products no matter where they’re headquartered.
What prompted Medtronic to move? Bloomberg’s Leonid Bershidsky lays the blame on federal tax and regulatory policies, and says the move does do damage to the Minnesota and US economy. If the US would fix its corporate tax policies, Bershidsky argues, we’d see a lot less of this rational response to the perverse incentives set up by the current system. Instead, the US seems ready to make the situation worse:
Medtronic’s planned $42.9 billion takeover of Dublin-based Covidien Plc wouldn’t crown a chain of such deals if they did not, as a rule, work. The data suggest U.S. companies that do tax inversions provide abnormal returns to shareholders — about 225 percent above the average, Elizabet Chorvat of the University of Chicago found in a recent study of such deals from 1993 to 2013. A Bloomberg News analysis of 14 U.S. corporate expatriations since 2010 also showed that the companies involved mostly outperformed the market benchmark.
The knee-jerk response of U.S. politicians has been to stop companies from seeking to improve their returns to shareholders. President Barack Obama proposed in his 2014 budget that U.S. companies should only be allowed to redomicile abroad if a merger transaction gave more than 50 percent of their equity to foreign companies, up from the current 20 percent. The brothers Sander and Carl Levin — a U.S. congressman and senator, respectively — are pushing through a similar bill. This would essentially force U.S. companies to acquire foreign firms bigger then themselves if they want to invert. The deals would become more difficult to structure, perhaps requiring the breakup of some U.S. corporations, but that would not stop companies from doing them so long as there are clear gains to be made.
Apart from this counterproductive “stop thief” approach, there is the utopian idea of getting all developed countries to tax multinational companies on the basis of where they actually make money. Taxes would then be calculated of the basis of sales, labor costs and investments by country. The logic appeals to Europeans, especially the French, when it comes to U.S. tech companies, but there’s no law saying all countries have to follow the same taxation principles. …
Instead of devising ways to punish companies for trying to make more money — closing the expatriation window or taxing foreign profits at U.S. rates — the mighty U.S. should emulate little Ireland. Its case is one of the clearest examples of how a low tax burden results in improved collection and a friendly business climate. With a 12.5 percent corporate rate, there would be no incentive for multinationals to keep profits parked overseas and more mergers would take place in the U.S. There would be fewer tax-motivated “deals made in hell,” too.
Basically, the problems that prompted Medtronic to relocate to Ireland are larger than Minnesota’s political and economic environment, although certainly one could argue that the local issues may or may not have exacerbated them. It’s just plain nonsense to stand in the capital and cheer the decision to leave whatever the reasons for the move. Minnesotans will have to ask themselves this fall if they’d rather have Dayton cheering failure or someone else at least cognizant of a setback when it occurs, no matter the reason.