Forget ‘Economic Patriotism.’ Change Bad Tax Policy to Discourage Inversion.

Clearly completely out of productive idea, President Obama has
declared war on companies that dare to move their headquarters out
of the country. The White House website is even devoted to the
cause, with a big graphic of a 19th-century business-y bigwig in
top hat and pince nez, apparently puffing away on a…doobie? It
looks hand-rolled, anyway. This is supposed to be a bad guy, we
know, enjoying his new low-tax digs in Ireland or someplace.

But the oddly archaic image is matched only by the hoary,
counterproductive tax laws that drive corporations to seek shelter
outside the United States. That should be obvious from the fact
that the president’s argument against shopping for friendlier
venues rests almost entirely on questioning the patriotism of
businesses that take advantage of better deals elsewhere.

 

Babbled Barry
yesterday at Los Angeles Trade Technical College:

Even as corporate profits are higher than ever, there’s a small
but growing group of big corporations that are fleeing the country
to get out of paying taxes.

Well, hold on a second.  I want you—I say fleeing the
country, but they’re not actually do that.  They’re not
actually going anywhere.  They’re keeping most of their
business here.  They’re keeping usually their headquarters
here in the U.S.  They don’t want to give up the best
universities and the best military, and all the advantages of
operating in the United States.  They just don’t want to pay
for it.  So they’re technically renouncing their U.S.
citizenship.  They’re declaring they’re based someplace else
even though most of their operations are here.  Some people
are calling these companies “corporate deserters.”…

I’m not interested in punishing these companies.  But I am
interested in economic patriotism.  Instead of doubling down
on top-down economics, I want an economic patriotism that says we
rise or fall together, as one nation, and as one people.

Obama went on to admit that the practice is perfectly legal, so
it’s not clear what these companies could be punished for
(not that he wants to do that). But he does want to change that law
and keep companies from going overseas. A
helpful post by Lindsay Holst on the White House blog explains,
“The President’s FY 2015 Budget proposes that we do away with these
loopholes, ensuring that American companies pay taxes to the
country that made them great.”

You go, Barry! Stop those unpatriotic deserters from leaving
this great country of ours that they shouldn’t want to leave cuz
it’s so great!

But wait. Why are some corporations engaging in inversion? Aside
from their lack of patriotism, that is. A 2013
paper from the International Monetary Fund gives us a little
more background than the White House may want us to have.

All G-7 countries other than the United States have now adopted
territorial taxation (or a partial version thereof) for active
business income. A pure version of territorial taxation imposes tax
on active business income earned by corporations outside their
countries of residence only in the source (“host”) country,
incurring neither contemporaneous tax liability in the home
country, nor taxation on dividend repatriation from foreign
subsidiaries. Worldwide taxation is a system under which
corporations deemed “resident” in a country are taxable by that
country on their in come from all over the world…

Companies can defer taxes on overseas profits if they don’t
bring the money to the U.S., and many are doing that—to the

tune of over $2 trillion. But other countries allow companies
to have easier access to their money without taking a big bite of
profits made elsewhere.

Japan and the United Kingdom were the last two G-7 countries to
switch to territorial taxation. They also cut corporate tax rates.
In both cases, money flowed into the countries after the
change.

For the Heritage Foundation, Curtis S. Dubay
suggests the U.S. adopt a territorial system rather than
cracking down under its existing laws, since tightening an already
uncompetitive regime risks really sending businesses fleeing
elsewhere.

But it’s not just taxation of worldwide profits—the U.S. is
generally uncompetitive on the business tax front, according to
rankings
released last year by the consulting firm
PricewaterhouseCoopers. The U.S. ranks 64 out of 189 for ease of
paying business taxes, with a total tax rate of 46.3 percent, and
175 hours required to comply, with an average of 11 payments.

By contrast, Ireland, where several U.S. firms
recently relocated their headquarters, comes in at 6, with a
total tax rate of 25.7 percent, and 8o hours required to comply
with an average of nine payments.

And thene there’s Canada, at 8,with a total tax rate of 24.3
percent, 131 hours to comply, and eight payments.

Apparently, economic patriots are expected to insert themselves
into the grinding wheels of an expensive and inefficient
bureaucracy—and like it.

President Obama says he wants Americans to “rise or fall
together.” Not only is that creepy, but given the proposals he has
in mind, only lemmings would take him up on the offer.