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The Corporate Tax Inversion Discussion Takes a New Turn


Declining social mood is evident in discussion of an important trend in corporate tax strategy.

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For the past several months, I have been watching the media's coverage of tax inversion-driven mergers. While initially, reporters used terms like "tax-motivated" and "tax-optimizing", of late, the nomenclature has turned decidedly negative. "Tax-evading" has become much more the norm.

Not surprisingly, public policymakers have weighed in of late with terms like "economic patriotism" suggesting that tax-inversion deals are un-American. Even more, economists have highlighted the significant decline in corporate taxes as a percentage of overall US tax receipts, while public interest pundits have linked tax-inversion deals to a heightened risk of higher individual tax rates. If corporations' share is falling, someone else -- a.k.a. American voters -- must pick up the slack.

This morning, Andrew Ross Sorkin took the discussion in a new direction suggesting that bailout-receiving US banks are now "co-conspirators" because they are advising, if not outright encouraging corporations to undertake tax inversion strategies before new tax rules close the loophole.

Since early 2011, I have been cautioning that weak American social mood would force transnational corporations to reveal which single national passport they carry.  The ability to be global AND local during periods of weak social mood is all but impossible.

This week Mr. Ross-Sorkin added another dimension to the discussion: Those who aid global corporations to transcend national policies will be guilty by association as well.

As indicators of social mood, the latest developments on tax-inversion strategies are decidedly negative.  That they have occurred coincident to a sharp drop in Gallup Economic Confidence is not surprising, though.

Everyone -- public policymakers and the media -- are following mood.

But please appreciate that transnational corporations are facing an onslaught of weak social mood-driven backlash.  BP (NYSE:BP) has become a pawn in the UK's response to the Malaysian airliner downing in Ukraine.  Microsoft (NASDAQ:MSFT) faces scrutiny in China, while foreign car companies are cutting parts prices in response to local outrage.  Meanwhile telecom and tech companies are losing business outside of the United States because of concerns about their links to the NSA.

Being global and local is getting tougher and tougher by the day.

Needless to say if Mr. Ross-Sorkin's perspective is indicative of a broader shift in attitude, not only will transnational corporations face increasing scrutiny but so will their advisers and members of their entire financial and product supply chain management.  Investors would be wise to consider these first and second derivative impacts.

When it comes to weak social mood, everyone gets measured by the company they keep.

Peter Atwater's groundbreaking book "Moods and Markets" is now available on Amazon and Barnes & Noble.
"Peter Atwater brilliantly provides a framework for understanding both the socioeconomic hubris that led to the great credit bubble of the past decade and the dark social-psychological hangover that has resulted from its collapse. In so doing, he offers an invaluable guide to what promises to be a very difficult and turbulent period ahead as we experience what he calls the 'me, here, and now' behavioral tendencies of the post-crash world."  -Sherle R. Schwenninger, Director, Economic Growth Program, New America Foundation

Twitter: @Peter_Atwater
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