In an article on corporate inversions (relocating their official headquarters to another country) the Washington Post told readers:
"the potential costs to the U.S. treasury are enormous. One measure, by the congressional Joint Committee on Taxation (JCT), suggests that the nation stands to lose nearly $20 billion in tax revenue over the next decade. Former JCT director Edward Kleinbard said he thinks the potential loss is much higher."
For those wondering how big a deal $20 billion over the next decade is, the Congressional Budget Office (CBO) projects total revenue over this period of $40.6 trillion, which means that the JCT estimate would imply a lose of revenue of 0.05 percent. To make another comparison, Medicare spending has been coming in far lower than projected in recent years. The most recent projections for net spending in 2015 is $524 billion. By comparison, in 2008 CBO projected that we would spend $609 billion in 2015, implying a saving of $85 billion in 2015 alone. Carrying through the differences in projected growth rates in the most recent projections with the growth rate projected in 2008, the savings from lower Medicare spending would exceed $1 trillion, making them more than 50 times "enormous."
This does not mean that the Congress and the president should not try to stop a practice that serves no economic purpose and will needlessly cost the government a substantial amount of revenue. It is also important to note that this gaming of the tax code imposes real costs on the economy. There are financial firms that will earn lots of money from this sort of financial engineering. The resources used by these firms (e.g. the labor of the accountants and lawyers engineering the switch) could instead be used productively. In effect. some people are getting very rich being paid to dig holes and fill them up again, in other words, doing work of no economic value.
This is a problem with all economic transactions that become profitable wholly or partly because of quirks in the tax code. For example, much of the wealth of private equity fund managers can be attributed to their exploitation of the deduction for interest payments. This deduction effectively subsidizes heavy corporate leverage, which is undesirable from an economic standpoint since it increases the risk of bankruptcy.
The economic waste associated with tax loopholes, which almost always makes the rich richer, is at least as important a reason to be concerned about corporate tax loopholes as the lost revenue to the government.
(Only one link allowed per comment)