There’s few things politicians resent more than being forced to confront the consequences of their own bad policies. So it is especially with the awful corporate tax code, which increasingly renders U.S. businesses unable to compete on the global stage.
Saddled with the highest corporate income tax rate among industrialized nations and a uniquely destructive worldwide tax system, it’s little wonder why businesses want to leave American shores. The latest in a string of examples is Pfizer’s proposed merger with Allergan, which would allow it through the so-called “inversion” process to relocate its headquarters to more tax friendly Ireland.
Bernie Sanders has in the past attacked such companies as “corporate deserters,” language typically reserved for those fleeing military duty. The insinuation is that corporations possess some obligation to the state instead of simply to their shareholders.
Now Sanders wants to block the Pfizer deal. In a letter to the Treasury Department, he argued, “Blocking this inversion would not only be sound fiscal policy, it would also act as a strong deterrent to other companies that are contemplating similar tax scams.”
The idea that relocating to jurisdictions with saner and more reasonable tax codes constitutes a “scam” is an abuse of the English language. Moreover, if Congress cared about sound fiscal policy, Pfizer wouldn’t be seeking to flee our country in the first place.
The responsible thing to do would be for Congress to address the structural flaws of the corporate tax code that are driving tax flight instead of attempting to assassinate the corporate messengers. CF&P’s Andrew Quinlan recently made that case in an article for The Blaze:
Attempting to rig the rules to prevent inversions is also not a viable solution. It’s been tried before and has never worked. So long as cross border economic mobility is an option – a given in the globalized economy – companies will flee from uncompetitive and confiscatory tax regimes. Nor should we wish to stop them even if it were possible, as the threat of capital flight is an important mechanism for keeping politicians from trying to extract too much from the productive sector of the economy.
If U.S. companies don’t invert or leave on their own accord, they will simply be bought out by foreign corporations. The tax code makes assets currently owned by American companies more valuable to foreign conglomerates who face lower tax burdens, which is why foreign takeovers last year doubled in terms of dollar value. With these takeovers come a greater likelihood of research and development or jobs moving overseas.
…Rather than publicly shaming companies for making responsible economic decisions, politicians bemoaning inversions need to look in the mirror. It has been 30 years since the last major corporate tax overhaul. In that time the rest of the world has left us behind by reforming their own systems and reducing corporate tax burdens.
In a blatant demagogic appeal to emotion over reason, Sanders also claimed in his letter that, “Large multinational corporations should not be able to avoid paying U.S. taxes when children in America go hungry.”
What an absurd non-sequitor. In fact, nearly everything in that sentence is wrong. An already extensive welfare state and the world-renowned generosity of the American people ensure that no children “go hungry” in any meaningful sense in America today. Nor, as he insinuates, has corporate tax revenues (which account for a small fraction of the total tax haul anyway) taken such a hit as to somehow limit said massive welfare state. Since the government doesn’t care to balance the budget, there’s no real connection between tax revenues and spending anyway. The entire point of that statement, in other words, is to falsely cast the paying of exorbitant taxes as a moral imperative to distract from the clear economic futility of maintaining confiscatory rates.
Americans should not be so easily distracted, and should recognize instead these attacks for what they are: a desperate attempt to avoid responsibility for the predictable consequences of bad lawmaking.
