Jack Lew has a big problem.
The current successor to Treasury Secretary Alexander Hamilton isn’t concerned about the crushing national debt. His department has to deal with the repercussions of that, but with the president’s diversionary skills and a little luck the problem can be kicked down the road a few years so Republicans can be made the fall guy. Nor the IRS scandal — with the connivance of the attorney general and the help of a supine media, it might yet be glossed over. Although the danger still exists that sooner or later a smart investigator might get around to asking the secretary about the wisdom of using the IRS as a political hammer to pound down the president’s political foes. Or at what point he understood that destroying evidence in a federal investigation might raise eyebrows.
No, Treasury Secretary Lew has a problem understanding why U.S. corporations are leaving the country. He’s not alone: many on the left simply can’t imagine why the companies they love to revile, protest, extort and tax would prefer to depart for more welcoming climes. As an example, “Truthtout.org,” an ultra-Progressive 501 (c)3 website, excoriates Walgreen corporation for exploring incorporation in the United Kingdom, calling it “unpatriotic.” Coverage includes a comment from Klaus Weber, an associate professor at Northwestern University, who noted that this sort of behavior is important “…because of rising issues of income inequality …” tying the issue into a neat, if non-sequitur, anti-corporate bundle. Both echo the secretary’s complaint that “We should have some economic patriotism here.”
Evidently the left defines “economic patriotism” as “stick around so we can transfer your profit to the unproductive, in exchange for their votes.” They are shocked and angered when the corporations to which they graciously extend the opportunity to fund their utopian dreams and plans for a permanent Progressive majority react as though they have been smeared with honey and rolled across a giant fire ant mound.
Progressives don’t understand economics very well, so they might be forgiven their misguided fuming. Presumably Secretary Lew does grasp economic principles, so his objections must spring from another source. Here are the facts:
The basic U.S. federal corporate tax is 35 percent. In the European Union, it’s 22 percent. In England, 21, and in Ireland, 12.5 percent. So when medical device maker MedTronic became the last of 14 large U.S. companies to reincorporate abroad since 2012, its savings were substantial.
Direct savings are not the only reason to move. The United States taxes its companies on global, not national, profits; we are one of only six OECD countries to do this. So Pfizer’s gains from sales in Uruguay, Uzbekistan and Uganda, and from any foreign subsidiaries, are added to profits from Utah, and taxed by Washington as a lump sum when the foreign gains are repatriated to the U.S. According to IRS data, tax revenue from money U.S. firms have had to bring home has amounted to about $175 billion a year since 2010.
This bizarre policy is behind the huge amount of money American companies hold abroad, possibly totaling trillions of dollars: there’s no reason to pay taxes one is not legally obliged to pay. Anyone who fills out a form 1040 knows this.
None of which seems to matter to Mr. Lew who, since he is dealing with corporations, uses only sticks. In a recent message to House Ways and Means Chairman Dave Camp, he urged not serious tax reform with a tad more sanity in corporate taxes, but stronger punishment and restrictions for American companies that decide to opt out of the developed world’s highest corporate tax rate. He doesn’t seem to understand that such talk only makes matters worse.
If CEOs think Congress will limit foreign reincorporation and that tax reform is dead until Mr. Obama leaves office, more will move while they still can. If foreign reincorporation is made difficult, more U.S. corporations will be vulnerable to foreign purchase, as CEOs seek shareholder value through becoming subsidiaries of companies incorporated in lower-tax countries. More tax revenue and jobs will be lost; innovation will move elsewhere. It’s not malice; it’s just another example of the perverse effects of attempts to establish the expert-ruled Utopia that is Obamanomics.
The idea that any firm should be a cash cow for the Progressive state out of a misplaced “patriotism” that robs investors and workers to pay politicians and their unproductive clients is a fever dream of the left. To them, companies exist to provide jobs and birth control, not goods and services. They must exist, because the government mandates it; profit does not enter the picture. It’s a foolish idea, embraced by easily-deluded people, evidently including our Secretary of the Treasury.
Morgan Liddick lives in Summit County.