Democrats and Inversions

Inversions in this context, to oversimplify, are when American companies buy foreign companies and then relocate their headquarters to that foreign country in order to take advantage of that country’s lower tax rates. That this is part of an American company’s management fiduciary duty to the owners to minimize costs and maximize profits is unimportant to the denizens of the present administration and to too many “Republicans” as well.

President Barack Obama’s Treasury Secretary, Jack Lew, had some thoughts about the evils of inversions.

These transactions erode the US tax base, unfairly placing a larger burden on all other taxpayers, including small businesses and hardworking Americans[.]

Of course, Lew and Obama carefully ignore the fact that half of us Americans already pay little or no taxes, “unfairly placing a larger burden on all other taxpayers.”

They also ignore the fact that it isn’t their money in the first place; the money belongs to the companies’ owners.

They also ignore the fact that our “tax base” already is excessively progressive and that it has the highest business rates in the world.

Lew went on:

These first, targeted steps make substantial progress in constraining the creative techniques used to avoid US taxes, both in terms of meaningfully reducing the economic benefits of inversions after the fact, and when possible, stopping them altogether.

A better way to reduce the economic benefits of inversions would be to do the patriotic thing: lower, drastically, the tax rates on American businesses. Taxes, after all, are at the foundation of our Revolutionary War—not only the stereotypical taxation without representation, but also the point of that demand of representation: so we could keep tax rates from getting out of hand.

If our business tax rates were lowered sufficiently—Ireland, for instance, taxes businesses at 12.5%, compared to our 35% rate—a couple of things would occur. The first would be a cessation of inversions, and if our business taxes were lowered significantly below 12.5% (I’ve been advocating all along for an elimination of taxes on our businesses), foreign businesses would be attracted to the US, bringing with them the jobs they have.

The other thing that would occur involves the $2 trillion that American companies with foreign branches, affiliates, and so on are holding overseas in order to avoid our usurious tax rates. With those tax rates vastly reduced, that money would come home. $2 trillion is a lot of jobs and capital investment (which is more jobs in the nearby future) waiting to happen.

But tax rate reductions are anathema, if not inconceivable, to Democrats.  And to too many “Republicans.”

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