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‘Economic patriotism’ and the end of corporate taxes

'Economic patriotism' and the end of corporate taxes

I’ve written a few times before on the Democrats’ big push for “economic patriotism,” which is one of the creepier euphemisms to slither out of their political laboratory.  (Would it be possible for a Republican to describe anything as “economic patriotism” without facing a withering storm of mainstream media editorials, denouncing him for daring to question the patriotic fervor of his political opponents?)  President Obama’s “economic patriotism” is a fairly straightforward and tedious cash grab, designed to cudgel a few more tax dollars out of corporations that dare to shift taxable revenue overseas after merging with foreign companies, to escape from the insane American corporate tax system.  Obama has gone as far as referring to such businesses as “corporate deserters.”  Deserters.  What happens to deserters, again?

This process, known as “inversion,” is not a big deal at the moment – not all that many companies have done it, and the net loss of Treasury revenue is a paltry two or three billion dollars over the course of the past decade - a sum that would be considered a rounding error in most Big Government schemes.  And yet, the President keeps making a big deal about it.  It’s virtually the only item on the Democrat agenda in the 2014 elections, other than protecting Obama from impeachment hobgoblins, catering to illegal aliens, and sternly criticizing billionaires who don’t exclusively donate to the Democrat Party.

Part of this emphasis on “economic patriotism” is purely political; Democrats are out of gas intellectually, so they’ve got to rally around some fiery slogan in a last-ditch effort to jump-start their campaign engine.  They are greatly assisted in this endeavor by the sure and certain knowledge that they won’t face any media backlash for using such crude, jingoistic language.  No Democrat will face tough questions about whether it’s inappropriate or divisive to state that everyone who disagrees with Party dogma is un-American… much less the more sophisticated criticism that resorting to fascist campaign tactics might make even more corporations think it’s a good idea to escape the clutches of the deteriorating American government before things get really ugly.

That’s the other reason corporate inversions are weighing so heavily on the Left’s mind.  They know what’s going to happen next.  If they get their way, the American business environment will grow increasingly hostile.  The regulatory burden will grow heavier, as will the tax burden, perhaps enhanced with that Value Added Tax left-wingers have been daydreaming about.  The demagoguery will grow more intense, too.  This is the basic flaw of fascism – or, if that term is too harsh, the sort of corporatism that shades into fascism as it fails.  When capital is still nominally owned by the private sector, but private corporations are the Little Partners of a supreme political authority, those Little Partners end up getting blamed for everything that goes wrong.  They have no effective way to defend themselves against their political masters – who control the media, have a monopoly on coercive force, tend to be very skilled at blaming other people for their failures, and maintain a populist relationship with the public.

The importance of that populist relationship is the reason fascism inevitably becomes feral, and violent.  The worse the overall national situation gets, the more energetically the political aristocracy seeks to whip the populace up against scapegoats.  We’ve seen this sort of thing happen during the Age of Obama before.  We’re just fortunate that American culture, and our economy, have enough deep reserves of strength to resist the fascist contagion.  We haven’t gone over the edge.  Does that mean we will never go over the edge, guaranteed?

I don’t know why anyone thinks it’s safe to infuse a little bit of the fascist virus into American politics – shouldn’t we endeavor to fully understand the great evil of the Twentieth Century, and ensure we avoid it completely?  But here we are, with the presently minor problem of corporate inversions bringing forth a campaign slogan of “economic patriotism,” which paints corporate leaders as dirty stinking un-American traitors who deserve whatever punishment the Ruling Class sees fit to hand out.  This lays the political groundwork for worse things to come.  If inversions do become a big problem, rest assured you’ll hear more about those corporate traitors, perhaps with a few suggestions for how freelance groups of “concerned citizens” can let those scoundrels know how treason will be punished.

Writing at the Daily BeastJonathan Alter wants to skip past all this corporatist foreplay and get right into straight-up fascism immediately, by forcing corporations to sign loyalty oaths.  Yes, really.  He thinks the sinister edges of this proposal can be sanded smooth by changing what they’re called.  Alter likes “non-desertion agreement.”

But make no mistake, this is fascism, complete with coercive force, plus the kind of iconography beloved by goose-steppers everywhere:

This executive order would get the attention of major corporations, most of which receive federal contracts. Mylan and Medtronics, for instance, are deserting even as they receive hundreds of millions of dollars in taxpayer money through Medicare and Medicaid. But other companies with few or no federal contracts might be tempted to desert anyway.

That’s where the rest of us come in. Under my scheme, companies that sign non-desertion agreements would embed a tiny American flag or some other Good Housekeeping-type seal in their corporate insignia for all to see, just as companies during the Great Depression that agreed to Franklin Roosevelt’s recovery plan hung an emblem of a blue eagle in their windows with the legend, “We Do Our Part.”

Companies that fail to sign non-desertion agreements would face the kind of public shaming that has gone out of fashion but could come back with a vengeance: boycotts, petitions, angry shareholder meetings full of the language of patriotism.

I must emphasize that I detect nothing about this article that suggests it’s elaborate satire.  He’s serious.  And, like every architect of collectivist ruin since the first flowering of Karl Marx, he’s convinced people like the ineffably noble Lightworker, Barack Obama – working with enlightened intellects such as, oh, say, Jonathan Alter – can implement these deadly ideas correctly, succeeding where all before them have failed:

At first glance, this kind of shareholder and customer uprising sounds unlikely. Opponents of Walgreens’ move to Switzerland haven’t yet found much traction. These days, an “activist investor” is usually someone on the other side of the issue claiming that companies have a “fiduciary responsibility” to desert the U.S. if it means lower taxes and thus higher shareholder return. Even Mr. 9/11, Rudy Giuliani, now a corporate front man, made that point on CNBC. Many of the same conservatives who believe, along with the Supreme Court, that corporations are people, apparently don’t think that companies have any of the obligations of citizenship.

Fortunately, these un-American arguments are destined to fail with the American public as the issue ripens. That’s because efforts to stop desertion aren’t populist or socialist but nationalist, a much more powerful force in American politics. Unbridled nationalism is a menace; it leads to trade wars and, all too often, real wars. But properly channeled, nationalism and patriotism are matters of the heart that cut to our deepest ideas of who we are.

And if there’s anyone brilliant enough to properly channel nationalism, it’s the guy who brought you ObamaCare, turned the Internal Revenue Service into a political weapon, and got re-elected by dispatching campaign operatives to claim his opponent gave a steelworker’s wife cancer.

I’d suggest liberals stay away from talking about the “obligations of citizenship” for a while, given their unseemly eagerness to import a large new population of illegal aliens.  But since Alter brought it up, can anyone point me to the Constitutional “obligation of citizenship” that absolutely forbids Americans from emigrating to other countries?  Among the individual citizens most noted for doing so are rich Hollywood movie stars, who are vital supporters of the Democrat Party.  I don’t recall any talk of forcing them to sign loyalty oaths and vow to keep their fortunes within reach of the American tax system.

What we have here is an example of the difference between persuasion and compulsion.  Obviously, politicians of the Big Government stripe lean toward compulsive solutions to problems, because government has a monopoly on compulsive power.  When the public is persuaded to accept coercive solutions to social or economic problems, the political class reigns supreme.  It knows it doesn’t have to worry about competition, other than the entirely political struggle over which Party controls the levers of power.  Once the public has accepted the idea that a given situation must be government-controlled, the State never really has to worry about looking bad in comparison to what non-compulsive solutions could have achieved.  The alternative path of economic liberty is not much discussed.  We are told to believe that the alternative to compulsion is chaos, and everything would have been much worse without heavy regulations, “stimulus” spending, or government bailouts.  It’s much easier to win a debate when the audience can be persuaded that the alternatives are unthinkable.

It’s refreshing to see people like James Pethokoukis at The Week thinking outside the box, before the box gets taped shut.  The alternative to using increasingly creepy tactics to preserve the compulsive power of the State, and keep the public in a “properly channeled” state of nationalist outrage, is to junk the corporate tax system altogether.  Incremental reforms are difficult, since (as Jonathan Alter observed in his “loyalty oath” piece) powerful interests don’t want to give up their special breaks.  So let’s just throw the whole thing out, stun the world, and kick the U.S. economy into overdrive.  Instead of working out ways to metaphorically (I hope) shoot “corporate deserters” in the back as they climb over the fences, let’s bring foreign investment here with a zero tax rate.

Besides, as Pethokoukis notes, corporate taxes are a scam anyway – a tactic for hiding the true magnitude of the American tax burden from the people who actually pay it.  That would be you, dear reader.  Hidden taxes are dishonest, and dishonesty is just another form of compulsion.

There’s no mystery as to why companies are going through all this trouble to escape the Treasury Department. It has nothing to do with a lack of patriotism, or the evasion of some sort of national duty, and everything to do with reducing costs and maximizing profits. That’s what businesses do — at least the ones that want to stay in business.

And let’s remember who benefits when businesses reduce their tax burden — perfectly legally! — by moving overseas. Mitt Romney was bang on when he said “corporations are people.” Workers bear 70 percent of the corporate tax burden, according to the Congressional Budget Office. American Enterprise Institute economists Kevin Hassett and Aparna Mathur have found higher corporate taxes lead to lower wages, with a 1 percent increase in corporate tax rates associated with a 0.5 percent drop in wage rates. No wonder the OECD found corporate taxes to be “the most harmful for growth” of all taxes.

Indeed, the corporate income tax is so harmful that we should just get rid of it. That would really help America’s struggling middle class. Economic modeling conducted by Boston University economist Laurence Kotlikoff finds “a very strong, worker-based case” for swinging the ax. Fully eliminating the corporate income tax, he writes, would cause “rapid and dramatic increases” in U.S. investment, output, and real wages. More investment means more jobs, higher productivity, and higher wages. Real wages of unskilled workers would rise 12 percent over the long term, and those of skilled workers would increase 13 percent. Now, Kotlikoff’s findings are probably at the high end of estimates. But they are tantalizing nonetheless.

That would cost a lot of tax revenue, wouldn’t it?  About $300 billion per year, according to Pethokoukis’ estimate.  He’s got an idea for how to cover that loss, by “fully taxing American shareholders at ordinary income rates on their annual dividends and capital gains.”  It would be interesting to see where the populist chips came down on that argument.  It seems like only yesterday that we heard a great deal of complaining about how rich people who make their income from such dividends, rather than earned salary income, are woefully undertaxed.

Perhaps a dramatic reform such as the Fair Tax – all of government’s revenue coming from a national sales tax – would be another way to fund the end of corporate taxes.  Anything that makes taxes simpler and more obvious, flatter and more transparent, would move the balance from compulsion back toward liberty and persuasion.  The only way to secure cooperation from free people is to persuade them.  That includes persuading corporations to headquarter in the United States, instead of one of the many countries that offers the advantages of a technological society without the ludicrous-and-getting-worse American tax code.  With business increasingly globalized, the U.S. government does face competition from lower-tax regimes… and competition being what it is, it’s likely there will be further efforts by tax havens to under-bid each other.  Why not jump to the head of the line and make America the competitor nobody can beat?  The alternative is to build increasingly high tax and regulatory fences around the borders to keep nervous corporations captive.  I guarantee that will not end well.

Persuasion seems more difficult than compulsion at first, but it’s far more productive.  That’s why the Ruling Class and its attendant court of lobbyists – the people who get rich without producing anything – hate it.

 

 

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