It’s wise to be on your guard when the Obama Administration trots out a new catch phrase. Today that catch phrase is “economic patriotism,” which has been re-defined to mean “preventing corporations from doing the smart thing and fleeing from the grasping hands of greedy politicians.” Obama’s not big on securing the southern border against waves of illegal immigrants, but he’s very keen on building fences to keep people in.
This isn’t the first time Obama has tried to drape the phrase “economic patriotism” over whatever scheme he had in mind, but it’s never been quite this specific before. You don’t have to work very hard to unpack the meaning of the phrase this time. The Administration is asserting that corporations which use “tax inversion” strategies to relocate their headquarters away from the insane U.S. corporate tax system are unpatriotic. “Instead of protecting tax loopholes that let corporations keep their profits overseas, let’s put some of that money to work right here in the United States, rebuilding America,” Obama declared.
“Rebuilding America?” What left it in ruins? Whose policies have been in effect while it was falling apart? It’s almost like Obama thinks we’re struggling to recover after some kind of six-year disaster… oh, wait.
Then it was Treasury Secretary Jack Lew on CNBC, amusingly pretending he thought up the phrase “economic patriotism” while he was scribbling out a letter to House Ways and Means chairman Dave Camp. “I said we should have some economic patriotism here,” Lew recalled on CNBC. “It’s not right to take an American firm, to benefit from all of the things that we do in the United States to make it a safe place to do business, but then to say I don’t want to pay taxes here, to shift my corporate address overseas to pay a lower tax rate, or no taxes.”
Where do you go to pay “no taxes?” (Trick question. The answer is America, if you happen to be an Obama crony. The folks over at General Electric can tell you an interesting story about how a giant corporation can reduce its net tax payments to zero.) Who thinks the lower-tax nations attracting these “inversion” deals are bandit-infested wastelands where it’s unsafe to do business? If there’s any place a corporate executive has good reason to worry about getting robbed, it’s the almost impassible Sherwood Forest of the American hyper-regulatory, tax-hungry State, haunted by Barack Obama and his band of merry men. Unlike Robin Hood of yore, this crew robs from the rich to give to the other rich.
Not only do businesses get looted by the U.S. government, they operate in an atmosphere of profound instability, surrounded by a shifting maze of laws that can be rewritten on the whim of the imperial executive. It also may not have escaped the notice of some inversion-minded executives that the current American political climate involves the relentless demonization of businesses that haven’t merged with the government in some crony corporatist configuration, the way insurance companies became an arm of the State through ObamaCare. The dominant political culture spends a lot of time setting up corporate America as a shadowy pack of robber barons, so the public will accept whatever cash grab or punitive action the Ruling Class dreams up next. Remember how the hot Democrat talking point about ObamaCare-inflicted job losses was that the unemployed were being joyously liberated from “job lock” – as if employers were tantamount to slave drivers?
I also can’t help noticing that Obama’s flag-waving passion for “economic patriotism” completely evaporates when the topic of discussion is the importation of a low-wage workforce from other countries. How can any of these jokers talk about economic patriotism with a straight face when one of their major policy goals is injecting millions of new job-seekers into a shriveled workforce that can’t find enough full-time jobs as it is? Instead of rallying the full force of government into protectionist pipe dreams, how about enforcing the border security laws we already have?
The Washington Examiner had a piece on Wednesday about how the Administration’s use of divisive rhetoric, coupled with the politicized abuse of government agencies like the IRS, has worked to intimidate wealthy individuals and corporate donors out of giving money to Republican groups – a phenomenon described as the fear of “getting Koched,” after the Koch Brothers, who have been relentlessly attacked from the floor of the Senate. “Certainly, there is some abiding sense of distrust that people who give to [Republican-leaning] super PACs will be looked at more closely by federal authorities,” remarked Republican Governors Association finance chairman Fred Malek.
Translation: the New Order plays rough, and it’s got big plans for the business community. There’s not much reason to hope things will get better, anytime soon. Lew’s case for “economic patriotism” fits in with the remodeled left-wing paradigm, popularized by the likes of Senator Elizabeth Warren, that everything belongs to the State, because no one could generate a profit without using invaluable public resources… giving greedy politicians the moral authority to take whatever they want, from whoever they please. Your vaunted “capitalist enterprise” wouldn’t be turning much of a profit without the government-build road that feeds into the parking lot, now would it? You didn’t build that. Someone else made that happen. (Again, you’ll notice this entire crackpot argument pops like a soap bubble when liberals wax poetic about illegal immigrants who benefit from public resources they didn’t pay for.)
Who can blame executives for thinking about escaping before the fangs of Big Government sink into their necks, especially when anyone who can read a balance sheet knows our insolvent government will become ever more ravenous for income in the years ahead? It’s surprising that “inversion” – the strategy in which a U.S. corporation merges with an overseas company in a lower-tax environment, then moves its profits beyond the reach of the American tax system – doesn’t happen more often. The much-discussed inversion deal that would have moved drug company Pfizer out of the U.S. ended up falling apart. The big new threat on the horizon is the Walgreen drugstore chain, which is thinking about relocating to Switzerland.
I suspect this new surge of “economic patriotism” rhetoric is based on well-grounded fears that inversion is going to start happening much more frequently in the near future. The pace is definitely picking up, with the Wall Street Journal counting 19 inversions since the beginning of last year, 14 of them occurring during the current year. Obama’s government may exist in a state of perpetual surprise when it comes to most important events, but they have a very keen sense for when their meal tickets are about to slip through their chains and bolt for the door.
The Wall Street Journal isn’t too impressed with the Administration’s “economic patriotism” strategy, and they don’t even spend a lot of time on the Orwellian phrase itself, lobbed by people who scream to high heaven at the merest hint that anyone might question their patriotism:
Mr. Lew also doesn’t understand that foreclosing inversions would only make U.S. firms more vulnerable to foreign takeovers. If executives can’t reduce their tax disadvantage by moving abroad, more of them will choose to serve shareholders by offering to be purchased by foreign firms that have a lower world-wide tax rate. And even if CEOs resist a foreign offer, shareholders might prefer the higher after-tax return on their investment. Who’s the real Benedict Arnold of tax policy here?
Even Mr. Lew admits in his letter to Mr. Camp that the “best way to address this situation is through business tax reform that lowers the corporate tax rate, broadens the tax base, closes loopholes, and simplifies the tax system.” But he and the President have done nothing to engage Congress on the issue, despite bipartisan interest.
Former Senate Finance Chairman Max Baucus worked hard on reform, but Mr. Obama showed no interest and the Montana Democrat finally gave up and agreed to be U.S. Ambassador to China. In February Mr. Camp introduced the most thorough-going reform in a generation of both corporate and personal taxes, but the White House ignored it. The basic problem is that Mr. Obama and his political factotum Mr. Lew care less about reform to make America competitive than they do about raising more tax revenue to spend.
As Mr. Camp put it to us in an email on Wednesday: “We’ve been down this road before, and we know companies will continue to do this as long as our tax rates remain the highest in the world. America cannot compete as long as our tax policy is so dysfunctional. Even the Secretary admits that tax reform is the right answer, so let’s do it. Send me your plan.”
Instead of loading their regulatory guns and kneecaping every business that tries to escape, the U.S. government should respond to international competitive pressure by becoming more competitive. Complex schemes to imprison capital don’t work out very well, and they’re hell on people who just want to find a good job and get ahead in life. The closed socialist system becomes a pressure cooker of inflating prices, tax avoidance plans, deferred investment, and collapsing economic growth. The supremely arrogant political chefs tinkering with the dials on that pressure cooker do not know what they are doing, but will not tolerate warnings about their ignorance. It really doesn’t end well when a huge nation’s economic recipe is written by people who have never run a business.
Solution: put our trust in the people who do run businesses, and are fully accountable for the failure of their ideas. We shouldn’t be concocting elaborate schemes to make our already incomprehensible tax code more difficult to escape, because among other things, that makes the marketplace more difficult to enter, for both homegrown entrepreneurs and foreign investors. Instead of fretting about inversion, we should tear our rotting tax system down and replace it with something that makes the rest of the world eager to invert to us. “We’re the best place to do business on Earth, and don’t you dare try to escape” isn’t a very inspiring patriotic slogan.