Guest Column from Assembly Majority Leader Jim Steineke (R – Kaukauna)
Johnson Controls Merger Shows Need for Tax Reform
January 25, 2016
I expect that the merger between Johnson Controls and Ireland-based Tyco International will be used as another opportunity for Democrats to attack Governor Walker and blame him for the relocation of Wisconsin’s largest public company. In reality, this merger points to a problem that Republicans and Democrats alike know we need to fix – high taxes and burdensome regulations are pushing too many companies overseas. Johnson Controls has a fiduciary responsibility to their shareholders so their relocation makes complete fiscal sense when they are going to save $150 million in taxes and $500 million in cost savings over three years.
How many more of our good-paying, family-supporting jobs have to be outsourced before we realize the need to reduce America’s ranking in the world as the highest-taxed country for corporations and small businesses?
In fact, it really shouldn’t even be a surprise any longer when we hear news of American businesses establishing global headquarters in foreign countries. The U.S. statutory corporate tax rate is at 35 percent. This is higher than any other developed country. Over the past 10 years alone, the worldwide average corporate tax rate has fallen seven points to under 23. The average rate in Ireland is 12.5 percent, 18.6 percent in Europe and 20.8 in Asia.
Often over-looked is how the burden of corporate income and payroll taxes fall on workers through reduced wages. Studies show that for every $1 increase in corporate taxes, workers’ wages are reduced by 49 cents in the long run. It also means higher prices on goods and services.
Our disproportionally high tax code encourages companies like Johnson Controls to merge with companies headquartered in other countries, a process known as “inversion.” More recently, Burger King, Pfizer, and Medtronic have relocated to more tax-friendly countries. Since 2012, 20 companies have used the inversion process to improve their bottom line.
To make matters worse, staggering growth in government regulations have added to the burdens on our businesses, both large and small. The number of new federal rules and mandates has grown from 71,224 pages in 1975 to 174,545 pages.
Here in Wisconsin, we’ve made reducing and simplifying the tax code a top priority. That’s why in addition to cutting taxes, we’ve reformed the tax code as evidenced by the elimination of 17 tax credits and downsizing from five to four tax brackets.
At the federal level, I am encouraged to see that overhaul of the U.S. corporate tax code is gaining bi-partisan support. President Obama directed Congress to lower the corporate tax rate in his State of the Union Speech on January 25. A bi-partisan effort led by Speaker Paul Ryan is currently underway in Congress that tackles international tax reform. This proposal includes a measure to allow businesses to repatriate foreign earnings at a reduced rate, creating billions in tax revenue that would significantly boost the U.S. economy.
Action on these items needs to be taken immediately, before more American companies move more of our jobs overseas. The time for talk is over. The American people have waited too long already.