Spelling out the high cost of tax inversions
Company after company are fleeing tax oppression in the United States by seeking mergers and acquisitions in lower corporate-tax rate nations. Ireland with a tax rate of 12.5 percent and the United Kingdom with 20 percent, in particular, are attractive alternatives to the United States with a world-leading corporate-tax rate of about 40 percent, including state income taxes. These deals have become known as “inversions.”
A recent, highly visible inversion prospect is the merger of Burger King Worldwide Inc., with Canadian coffee-donut chain Tim Hortons Inc., moving the new company’s headquarters to Canada (corporate-tax rate 15 percent). Ironically, Berkshire Hathaway, led by U.S. tax-avoidance critic Warren Buffett, will apparently finance the deal.
Tellingly, the Tax Foundation’s 2014 International Tax Competitiveness Index, released Monday, reported that the United States has the 32nd-most competitive tax system out of the 34 Organization for Economic Co-operation and Development member countries.
Yet what is the reaction of President Obama and Senate Democratic leaders Harry Reid of Nevada and Charles E. Schumer of New York? Change the corporate “inversion” rules to keep the feet of those “corporate deserters” nailed to the U.S. “floor” because tax avoidance is “unpatriotic.” Have they never heard of the “tea tax,” the (original) Tea Party and the Revolutionary War?
Corporate inversions are truly the modern “shot heard ‘round the world.” Democratic politicians in the United States are truly slow learners. They could be out front urging a 10 percent corporate-tax rate, and a territorial tax system, to keep American corporations at home, while luring countless foreign corporations with their capital and jobs to a welcoming America.
But, no. Their knee-jerk reaction is a product of their compulsion to redistribute wealth rather than increase it, and their preoccupation with “static” scoring of tax cuts as revenue losers. They have either forgotten or never learned that corporations don’t actually pay taxes.
Ostensibly, the corporation is the taxpayer because the check to the Internal Revenue Service bears the corporation’s name and is drawn on its bank account. Who actually bears the tax burden? Corporate employees, customers and investors pay those taxes through lower wages and fewer jobs, higher product or service prices, and lower dividend rates, respectively.
The most egregious injustice is borne by the very people that progressives claim to represent: the employees. Studies show that fully 50 percent of each tax dollar collected from a corporation serves to reduce the wage rates of current employees and stifles job opportunities for prospective workers.
A much lower corporate-tax rate, multiplied against a broader base of economic activities, investments and corporate earnings, would quickly equal or exceed current corporate tax proceeds with much lower compliance costs and reduced tax avoidance.
Democratic leaders are so wedded to their Keynesian, progressive litany and orthodoxy that they cannot break the chains that bind them to bankrupt fiscal policies, even as they condemn America to consistently anemic economic growth.
Our nation could grow its way out of our current malaise, which in bankruptcy-law terms would be known as a Chapter 11 bankruptcy “workout.” We can do so only with robust economic growth of 4 percent or more annually, instead of the 1 percent or less generated by the Obama administration.
At 4 percent annual growth, the economy of America would double every 17 years. That is the way you keep the ladders up for everyone and restore optimism while encouraging individual responsibility and family productivity.
In the third year of his first administration (1983), President Reagan was growing the gross domestic product at more than 6 percent a year precisely because he cut tax rates, as well as domestic spending and regulations. During his eight years in office, the “economic pie” of America exploded, increasing the incomes and wealth of all Americans, while doubling federal government tax revenues from $500 billion to nearly $1 trillion.
Meanwhile, Reagan was able to restore our nation’s defenses, crippling the Soviet Union’s military establishment, bringing down the Berlin Wall, and winning the Cold War without firing a shot.
Republican takeover of the U.S. Senate this fall will be an essential first step in restoring common sense — instead of liberal ideology — to U.S. tax policy. New Senate leadership could coordinate with the House in proposing major reductions in corporate (and personal) income-tax rates and create a territorial tax system, which will encourage the repatriation of at least $2 trillion of American corporate earnings now standing offshore. This capital will return home to create the investment and jobs America needs.
