It’s hard to believe, but the United States has the highest corporate tax rate in the developed world. At 39.1%, this puts our nation high above the Organization for Economic Co-operation and Development average, which is 24.8%. This inevitably produces stark economic consequences. And for all of the talk we’ve heard this presidential cycle about bringing jobs back to America, the focus has been more on punishing companies for doing business internationally rather than crafting a job-friendly climate at home.
Graphic courtesy of the Heritage Foundation
But the presidential race isn’t the only place we see calls for import tariffs and other protectionist measures that would adversely affect American consumers. Policies aimed at punishing companies that would create jobs at home if the economic climate was friendlier are routinely embraced by federal regulatory agencies; generally with little to no congressional oversight. The latest example of this comes the Treasury Department.
As Diana Furchtgott-Roth, a former chief economist at the Department of Labor recently explained at the New York Times, “[T]he Treasury Department issued new regulations in an attempt to limit ‘inversions’ — in which American companies are acquired by foreign companies, legally lowering the tax burden of American companies.”
To a free market advocate, this practice sounds like a good thing. A lower tax burden means a greater ability to invest in job creation and innovation. And can you really blame American companies looking for a better deal when our corporate tax rate is nearly 15% higher than the developed world’s average?
President Obama – who is no foe of corporate welfare; Solyndra, anybody? – has railed extensively against these so-called inversions. Just this week, he praised his Treasury Department for its new regulations, which ended up killing a $152 billion merger between Pfizer and Allergan, an Irish drug company. (Ireland’s corporate tax rate is nearly 27% lower than the United States’, go figure.)
Said Obama, “I am very pleased that the Treasury Department has taken new action to prevent more corporations from taking advantage of one of the most insidious tax loopholes out there, and fleeing the country just to get out of paying their taxes.” He also said that, “When companies exploit loopholes like this, it makes it harder to invest in the things that are going to keep America’s economy going strong for future generations. It sticks the rest of us with the tab. And it makes hardworking Americans feel like the deck is stacked against them.”
Those are nice sounding talking points, but the logic is backwards. Don’t get me wrong, I’d like to get rid of tax loopholes too. Give me the flattest and lowest taxes possible, for corporations and individuals alike, especially if you don’t want the “deck stacked” against anybody. But very specifically, if you don’t want American companies, which create jobs here, taking drastic measures to avoid a very clearly onerous tax burden, perhaps you should look at making the economic and regulatory environments more friendly – lest the corporations decide to leave all together – taking American jobs with them!
And beyond the absurdity of punishing American companies rather than lowering their tax burden, let’s take a look at the hypocrisy playing out here. What this really means is that Obama, and most of his fellow Democrats, are beside themselves at the notion of a corporation seeking more fertile economic grounds through the lower-tax option of inversions. But they’re totally fine with throwing countless billions of taxpayer dollars at their favored corporate interests. Funny how that works. It must be an “as long as we’re in control” thing.
Here’s my free market proposition, Mr. President. We’ll close the inversion loophole (and all other loopholes, too) just as soon as you and your buddies in Congress give up your corporate welfare, take a hatchet to the tax code, and lower the corporate tax to a competitive level somewhere below Ireland’s rate of 12.5%. Now I will say to the President’s credit that he has at least paid rhetorical lip service to simplifying the tax code, and even lowering the corporate tax rate.
Despite this, it still seems that nearly every action undertaken by the federal government is more stick than carrot. You can’t scold some corporations for doing what they can do lower their tax burden and attempting to keep jobs in the U.S. while on the other hand, you throw billions in corporate welfare at others. Sounds more than a little hypocritical and power hungry, no?
While the concept of a free market coupled with a low tax burden is far from novel in theory, it often seems drastically, if not absurdly, out of reach in the United States. Want more American jobs? Make it profitable to headquarter and produce here. Punishing companies that use foreign labor with an import tax, as has been suggested during this presidential campaign, would do nothing more than pass the cost on to working and middle class Americans.
Similarly, having a corporate tax rate so high that companies are incentivized to headquarter elsewhere, often taking jobs with them, is a disastrous proposition. As Furchtgott-Roth aptly put it, “The solution is not burdensome new rules, but lower taxes. Inversions are increasing because American taxes are out of line with foreign codes. Until that changes, inversions will continue. Rather than trying to block companies from leaving, President Obama would do better by making America more hospitable to global headquarters.”
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Corie Whalen Stephens is a libertarian-conservative activist and writer based in Houston, Texas.
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