Inversion and the Cost of Political Cowardice

The festive summer political fundraising season has begun and the shakedowns have moved from the boring old restaurants of Washington, board rooms of New York and show houses of Los Angeles to the trendy summer resorts of Martha’s Vineyard, Nantucket, and the dreadfully named “Hamptons” (formerly enjoying separate identities as East, West, South and Bridge) where socks are optional.

Just as the tired winter venues must be discarded in favor of the trendy summer ones, the tired old political issues must also be discarded in favor of sparkly new ones to keep the money rolling in. The summer issue du jour is “inversion.”

It seems that American corporations, especially in the pharmaceutical industry, have become disenchanted with our corporate tax laws. For some unknown reason, American corporations find it more difficult to achieve their profit goals if they are taxed at rates higher than their foreign competitors and if they are taxed on worldwide income, which is not what happens in other developed countries.

The solution chosen by the disenchanted is to up sticks and become a taxpayer in a friendlier country while continuing to do business here. All quite legal and perhaps even quite intelligent. Also, a problem well known and unsolved for decades.

This is deeply upsetting to the governing class because it just might be a canary in the coalmine. Already, Eduardo Saverin, a Facebook founder, decamped for Singapore taking his billions with him, and almost 3000 others renounced their citizenship in 2013. While not a huge number, it is a 221% increase over the prior year. Now corporations are following.

According to the Wall Street Journal, “Obama Administration Urges Immediate Action on ‘Inversions’” Treasury Secretary Jacob Lew says “lawmakers should enact legislation to shut down abuse.”

Here is how Mr. Lew – or more likely the fundraisers and spinners who actually run things – see it. “What we need as a nation is a new sense of economic patriotism, where we all rise or fall together,” Mr. Lew wrote. “We should not be providing support for corporations that seek to shift their profits overseas to avoid paying their fair share of taxes.”

Ahhhhh…. The soothing sound of words like “economic patriotism” and “fair share” are certain ease the opening of left-leaning wallets while the same words, when seen as a populist threat, instill fear and donations on the right.

On the other hand, the vacationing lawmakers could consider fixing the tax code, which is widely acknowledged to be a dreadful mess. That, however, would require courage, a commodity in short supply among the leadership-phobic.

Enjoy the faux-outrage for the remaining six weeks until Labor Day and the return of mandatory sock wearing, but remember the inversion debate is about courage not taxes.

2 Responses to “Inversion and the Cost of Political Cowardice”

bill gordon, July 17, 2014 at 4:20 am said:

There are lots of reasons provided by the politicians, and particularly this President, to leave America. Formost most among them is the idiotic and misguided attempt by the Federal Reserve to micromanage the economy and destroy our currency in the process. It won’t be long before our dollars will be worthless and the remaining patriotic taxpayers won’t have a pot to piss in.

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Dale Jenkins, August 03, 2014 at 7:24 pm said:

The US has the highest corporate tax rate in the civilized world – 35%. Has anyone at a senior level of government taken a freshman economics course? If they had they could figure out that by reducing the corporate tax rate to, say, 20% most of the $2 trillion (that’s trillion, not billion) held by US corporations in cash in offshore banks would flow back home and be invested in plants and equipment, or paid out in dividends. Employees are needed in new plants, and that means jobs. Increased dividends means more spending, creating demand for goods and services, which means more jobs. Result:Prosperity

Why is this so difficult? Is there some underlying motive at work here, like keeping this huge cache of cash immobilized so that more people are forced into government programs, so that the US can achieve the liberal paradise of socialism?

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