As we note here frequently—like yesterday, on the minimum wage—when it comes to economics liberals suffer from a severe case of cranial-rectal inversion.
Liberalism’s latest trip to a tight dark place is over the issue of —irony alert— “inversions,” whereby American corporations buy foreign companies and “relocate” their headquarters to a foreign nation to lower their corporate income taxes. Kind of like what rich northeasterners do when they retire and move to Florida (no personal income tax), or as any number of American companies have done by moving to Texas (lower taxes and less nonsense of every other kind).
The reason for inversions is simple: the U.S. has the highest corporate income tax rate in the world, by a full ten points over the next highest. To be sure, by taking advantage of the many wrinkles in the tax code carved out for favored industries or government purposes (like “green” energy—yeah, it’s green, but a different kind of “green” than you thought), many American corporations have a net tax bill that is far lower than the “rack rate” of 35 percent, but that just shows the corruption and special dealing that riddles our tax code, and is a screaming advertisement for genuine tax reform.
On the other hand, as Walter Galvin explains this morning in the Wall Street Journal, the U.S. not only has the highest corporate tax rate in the world, but is also the only country that taxes corporations on their worldwide profits—not just what is earned inside the U.S. This means that many corporations pay foreign tax and then U.S. tax. If you then receive a dividend and pay income tax on it, it will mean the profit has been taxed three times, with governments getting a larger total portion than the shareholders. And this, Democrats say, is not enough. Even Hillary Clinton in 2007 and 2008 made careful noises (careful not to rile the Democratic Party base) that the corporate tax rate should be cut.
Naturally today’s Democrats disdain even to discuss the idea. Instead, Obama and other liberals are charging that American businesses that invert are “unpatriotic,” with Obama claiming without any self-awareness that “You don’t get to pick which rules you play by.” Because picking your own rules is his job!
More than 20 years ago I got to watch a highly amusing demonstration of liberal economic illiteracy at work. California back in the 1980s imposed its sales tax on capital equipment purchases, which most states sensibly exempted for the simple reason that it drove away large capital investment. A 6 percent sales tax on a $1 billion high tech chip plant adds substantially to the cost of a new plant, so many companies would locate outside of California.
I watched the head of tax compliance for a major Silicon Valley company that was deciding whether to build a new $1 billion plant in California or New Mexico attempt to explain the facts of life to the Senate Finance Committee in Sacramento in the following way.
Tax person: Senator—you are not going to collect an equipment sales tax from us. There are two ways you aren’t going to collect this tax. You aren’t going to collect it if we build our plant in New Mexico. And you aren’t going to collect it if we build here in California.
Chairman of the Committee: But we need the revenue!
Tax person: Let me explain again. . .
The committee chairman (in whose district the new plant would have been built, incidentally) never did get it. The plant was built in New Mexico. California eventually got it, and exempted capital equipment from the sales tax.
Even if Congress were to be so foolish as to prohibit the current “inversion” strategy, nothing prevents American corporations from relocating overseas for real. I’m sure most Apple executives ands engineers would find Switzerland a pleasant place to live and work.
Oh, and this news item: Record number of Americans renouncing their citizenship for tax reasons. Maybe someone can send flashlights for liberals to extract themselves from their rectal-cranial inversions.