Exit taxes deter AND law can be modified to cover inversions.
Yonah ’20 [Reuven Avi and Lior Frank; May 18; Irwin I. Cohn Professor of Law and Director of the International Tax LLM Program at the University of Michigan Law School, PhD in History from Harvard University, AM in History from Harvard University, JD from Harvard Law School; PhD Candidate at Haifa University; Tax Notes Federal, “Antitrust and the Corporate Tax: Why We Need Progressive Corporate Tax Rates,” https://www.taxnotes.com/tax-notes-federal/corporate-taxation/antitrust-and-corporate-tax-why-we-need-progressive-corporate-tax-rates/2020/05/18/2ch9n]
A highly progressive corporate tax structure would also address excess profits that derive from external crises like the coronavirus pandemic. Amazon, for example, has high profits in a normal year, but is likely to have even higher profits in 2020 because of the pandemic. In general, Amazon, Apple, Facebook, Google, and Netflix all have high profit margins, especially if we disallow expensing R&D, which tends to reduce their taxable income and should not be expensed because it generates future profits, and if we tax them on worldwide profits so they cannot avoid tax by shifting profits offshore.23
Importantly, none of the big tech companies can easily escape a progressive U.S. corporate tax by inverting (that is, expatriating to another, more friendly jurisdiction) because under existing law, inversions are subject to an exit tax that would be prohibitively expensive for the controlling founders. As long as Mark Zuckerberg, Jeff Bezos, Sergey Brin, and Larry Page control the big tech companies, and as long as they don’t want to pay 23.8 percent of their unrealized gains (that is, tens of billions in tax) to the IRS, the big tech companies are trapped. And if they are willing to pay the 23.8 percent, section 7874 should be revised to treat an inverted corporation as a U.S. corporation if it is managed and controlled from the United States or if it merges with a smaller foreign corporation, as the Obama administration had proposed.