25 Percent Corporate Tax Rate Would Have Kept 1,300 Companies in United States, Study Reveals $179 Billion M&A Deficit Rather Than $590 Billion Gain

Washington – A report released today by Business Roundtable reveals that the competitive disadvantage caused by an outdated tax code led to a $179 billion net loss of American companies and business assets to foreign buyers from 2003-2013. The study also finds that a 25 percent U.S. corporate tax rate would have prevented foreign purchases of 1,300 companies during that same period.

The review by accounting firm EY of more than 25,000 cross-border merger and acquisition transactions found that American companies had been the target in 23 percent of transactions by value and the acquirer in just 20 percent, resulting in the $179 billion mergers and acquisitions “deficit.” Disturbingly, technology-intensive sectors and small deals account for a significant portion of the transactions by value.

“American business investment and job creation are hamstrung by policymakers’ failure to fix our broken tax code,” said Business Roundtable President John Engler. “Our failed policies have turned the United States into a net exporter of headquarters, valuable assets and startup technologies. We’ve got to reverse this trend.”

Key findings from the study include:

• With a 25 percent corporate tax rate, U.S. companies would have acquired $590 billion in cross-border assets over the past 10 years instead of losing $179 billion in assets (a net shift of $769 billion in assets from foreign countries to the United States);
• The $24.5 trillion global market for business deals over the past decade was characterized by a significant number of small transactions;
• The United States is regularly losing business assets through relatively small-scale transactions. One half of the cross-border transactions were valued at $29 million or less; and
• The economic benefits created by innovative startups are more likely to stay in the United States when these businesses are acquired by domestic companies, rather than foreign companies, because they are more likely to conduct more of their research and development activities in the United States.

The report notes the economic value of U.S.-based, globally engaged firms in 2012 accounted for nearly a quarter of U.S. GDP, $584 billion in capital investments in U.S. property, plant and equipment, and more than three-quarters of all research and development spending in the United States. These American companies employed one in five workers with wages 25 percent higher than the private-sector average.

“Over 50 percent of U.S. multinationals’ revenue and most of their growth comes from outside the United States. Reform efforts should focus on how to increase American competitiveness through pro-growth tax reform,” said Mark Weinberger, EY Global Chairman & CEO, and Chair of the Business Roundtable Tax and Fiscal Policy Committee. “Debates around how to effectively tax U.S. companies’ foreign earnings miss the point that if American companies can’t compete and win globally, there will be no earnings to bring home. The current U.S. tax system puts companies at a disadvantage in a global economy and results in assets, technology and tax dollars leaving the United States at a disproportionally high rate.”

A copy of the full EY report is available here.