Moving Your Company Overseas Is So Evil, Jack Lew Would Ban it in the Past!

Treasury Secretary Jack Lew,
who can’t pass a quarter-sized knothole in a fence
without seeing a tax “loophole” through which lucre might pass
that the government could otherwise palm, joins his voice to

those condemning U.S. corporations who move overseas to reduce
their tax burden. In a letter to four members of Congress, he also
manages to imply that it’s wrong to move yourself overseas
to avoid Uncle Sam’s sticky fingers. In fact, he’s so repelled by
the practice of shopping for lower tax rates that he wants the
practice stopped in the past.

The letter, dated
yesterday and addressed to Representatives Dave Camp (R-Mich.) and
Sander Levin (D-Mich.), of the House Ways and Means Committee, and
Senators Ron Wyden (D-Ore.) and Orrin Hatch (R-Utah) of the Senate
Committee on Finance, complained about the practice of
“inversion,” whereby companies move their headquarters to low-tax
countries while continuing to operate in to U.S.

In recent months, there have been reports of a number of
corporate inversion transactions designed to change the tax
domicile of a U.S.-based multinational firm with minimal change in
its business operations. These transactions involve the purchase of
a foreign corporation (generally with a much lower corporate tax
rate and generous rules for shifting income between countries), the
transfer of tax domicile to the foreign firm’s country of
incorporation, and the shifting of tax liability for the combined
firm to the new foreign tax domicile.

Lew whines on, “these firms are attempting to avoid paying taxes
here, notwithstanding the benefits they gain from being located in
the United States.”

Because, apparently, taking their facilities, jobs, technology,
and investments with them would be the proper thing to do.

As with every complaint about inversion so far, Lew’s letter
comes off as a flag-wrapped serving of patriotic mush. Like other
non-fans of inversion, he fails to acknowledge that, maybe, the
United States just isn’t that competitive in some areas (such as
corporate taxes) and should try something smarter than chanting
“USA!”

Incidentally, 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. This country also has a total tax rate
that’s above average, and barely seems to be trying to compete with
other countries that Americans once mocked as overtaxed and
overgoverned.

Canada ranks at 8, the U.K. at 14, and Australia at 44—with
burdensome bureaucracy as big a concern as the government’s take.
Ireland, where several U.S. firms
recently relocated their headquarters, comes in at 6.

Maybe there’s room to quibble with those rankings, but the idea
that companies can’t and shouldn’t hunt for environments that don’t
strangle them in red tape and suck them dry is ludicrous.

In fact, Lew seems to resent anybody going hunting for
friendlier environs. “We should prevent companies from effectively
renouncing their citizenship to get out of paying taxes,” he says.
Ah. Shades of efforts to penalize
individuals for seeking lower-tax homes elsewhere.
We’re all in this together, or else.

And what’s Lew’s solution?

Senators Ron Wyden and Carl Levin and Congressmen Sander Levin
and Chris Van Hollen have supported this idea in Congress and have
put companies on notice that any transaction that takes place after
early May 2014 will not have the desired effect of lowering future
U.S. tax liabilities. Congress should enact legislation
immediately—and make it retroactive to May 2014—to shut down this
abuse of our tax system.

What’s that Latin phrase? Ex post…something. It will come to
me.

Maybe we could just improve the tax environment in this country
so that people and businesses want to stay. And, to his
credit, Lew does recommend lowering the corporate tax rate, and
simplifying the tax system, though he also wants to “broaden” the
tax base and, of course, close “loopholes.”

Hey, you can’t have a little tax reform without vilifying,
threatening, and flag-waving at the folks asking for some
relief.