Taxing False Premise, Second Round

In a recent Wall Street Journal op-ed, Senator Ron Wyden (D, OR), Senate Finance Committee Chairman, labored under the same false premise as the international collaboration effort.

While decrying the loss of US companies as they move overseas to avoid the US’ highest in the world corporate tax rate, he insisted

America’s tax base erodes at a cost of hundreds of millions of dollars in revenue, increasing the burden on other companies and individuals. America also loses good jobs, talent, investment, and the ability to compete on a global stage.

Legal or not, this loophole must be plugged.

Once again: it isn’t possible for government to incur a “cost of hundreds of millions of dollars in revenue” when it isn’t government’s…revenue…in the first place. Certainly, government sees a reduction of “millions of dollars” from these moves, if we elide—as Wyden does—the dynamic effects of real tax reform.

However, the right answer isn’t Wyden’s, who demanded

Current law requires that US companies reincorporating overseas must ensure that at least 20% of their stock is owned by their new, foreign partner. As chairman of the Senate Finance Committee, I am committed to raising this floor to at least 50% for all inversions taking place from May 8, 2014, on.

This move is—how shall I put this delicately—brain-dead. Just as companies have found and are finding legal ways around existing tax law, and by the way, leaving profits earned overseas overseas due to our usurious corporate tax rates, they’ll find ways around Wyden’s 50% threshold, too. All Wyden will get out of this is feel-good and frustration, if he’s sincere in his effort, and open-ended political gain from his base if he’s not.

Wyden will not get anything material done regarding his concern for “increasing the burden on other companies and individuals.” Nor will he accomplish anything meaningful for his loss of “good jobs, talent, investment, and the ability to compete on a global stage.”

No, what’s needed is what is the first step in any recovery program: recognize and acknowledge that he has a problem. His notion that taxes are government’s money has to go, to be replaced by recognition that it’s our money, granted to government only for purposes that suit us, not that suit government.

The next step is to lower US corporate tax rates (eliminate corporate taxes altogether, say I, but a sharp reduction is a good early step), and then to make it easier (not harder) to partner with overseas companies (including in those companies’ taxing jurisdictions) and cheaper (free would be good) to repatriate profits earned overseas to the US.

Wyden thought he was addressing tax rates, too, in his op-ed.

A [lower] corporate tax rate that creates a favorable investment climate and reduces the incentive to game the system is critical to successful reform. … Where the rate ends up depends almost entirely on the American business community’s willingness to pitch in by closing loopholes.

There’s that false assumption that it’s the government’s money, again. This time it leads to the false conclusion that tax reform must, somehow, be revenue neutral. That may be useful politically, but it’s useless to true tax reform. There’s no need to “close loopholes” in return for lower tax rates. Loopholes need to be closed, certainly, but in order to reduce government social engineering through our tax code, not in order to preserve revenue that isn’t government’s to begin with. Of course, eliminating corporate taxes altogether would close all those loopholes….

Wyden wants global competition? Let other nations compete with us, beginning with lowering their business tax rates in their resulting newfound need to keep their companies from relocating to the US. With foreign talent coming here, while ours stays here. For good jobs in the US, for investment in the US.

Oh, and the lower tax rates also will decrease “the burden on other companies and individuals.”

There’s competition. It can come only from correcting that premise, though.

Leave a Reply

Your email address will not be published. Required fields are marked *