Leftists Call for 'Economic Patriotism' Among Corporations
At issue is the growing trend of corporations moving overseas to save billions in taxes.
In a continuing effort to bash corporate America and its efforts to make (and keep) a profit, the latest leftist target is a practice called tax inversion. This occurs when American-based companies merge operations with partners based in a foreign nation and relocate their corporate operations overseas to take advantage of a lower tax rate. The practice made news last week when Treasury Secretary Jack Lew penned a letter to House and Senate leaders calling for restricting tax inversion and instilling “a new sense of economic patriotism” here in America.
Barack Obama has echoed that theme, too. “I don’t care if it’s legal” to move your corporation overseas he declared. “It’s wrong.”
Finding a cheaper corporate tax rate isn’t hard, because the U.S. has the highest one among the 32 developed countries that belong to the Organization of Economic Cooperation and Development. Moreover, all but the U.S. have reduced their rate in the last two decades. With state corporate taxes included, American corporations can be taxed upwards of 40%, and that’s one big reason why they’re stashing more than $2 trillion in profits abroad.
Because of these punitive rates, more and more multinational companies are considering inversion, and nine, ranging from Chiquita Brands to drug maker AbbVie, have gone through with it this year. Meanwhile, companies such as the Walgreen drugstore chain are looking into merging with similar foreign entities in order to save on their tax bills. Since the practice began in earnest three decades ago, nearly 80 such inversions have taken place, and the pace is increasing as companies look to improve meager bottom lines in any way possible. A prospective ban may hasten the move by those corporations considering the idea.
Ever the campaigner eager to change the subject from his many failures, Obama told an audience at the Los Angeles Technical College that these companies are “technically renouncing their U.S. citizenship, they’re declaring their base someplace else even though most of their operations are here. You know, some people are calling these companies ‘corporate deserters.’” Not him, of course, just “some people.”
Instead of seeking to lower our nation’s oppressive corporate tax rate, Democrats are pressing for a bill to curtail inversion by deeming companies that do over half their business in the United States as American for tax purposes regardless of where profits occur. While this effort will go nowhere in a divided Congress, it’s a handy campaign issue guaranteed to be red meat to a Big Labor voter bloc that Democrats desperately need to motivate for the November election.
On the other hand, Republicans have a tried-and-true approach in mind. “Comprehensive tax reform would reduce deductions and lower tax rates for everyone,” said Michael Steel, a spokesman for House Speaker John Boehner (R-OH). Rep. Dave Camp (R-MI), Chair of the House Ways and Means Committee, has proposed tax reform that includes a cut in the federal rate to 25% – a rate that would put the United States much closer to the median rate globally. But as the 113th Congress winds down, this will be yet another issue left to a future Congress. In the meantime, corporate inversions are looking more attractive to the bean counters at some of our biggest corporations.