By William R. Collier Jr.
The Democrats are pushing for Congressional action to end the profit-hiding practices of some of their biggest corporate backers.
“What we need as a nation,” Treasury Secretary Jack Lew told members of Congress, “is a new sense of economic patriotism, where we all rise or fall together.” Lew is referring to a new push by the Obama Administration to go after US Corporations which hide their profits overseas, profits which some estimate to be at $2.1 trillion per year. Though some say this is greatly over-inflated.
With Federal Corporate tax rates of 35% (40% higher than Communist China’s corporate tax rate of 25%) US corporate taxes are the highest in the developing world. US corporations are, some argue “understandably”, seeking ways to get out from under this tax burden which impacts their ability to invest in growth and deliver profits to investors, factors which they believe will make them less competitive than foreign owned corporations.
The United States is the single most aggressive pursuer of its nationals’ foreign assets and earnings. The UK, for instance, allows its citizens to keep foreign earnings in those countries where they are taxed by the country where they are earned, but Americans can often be forced to pay both any “local” taxes where foreign income or profits are earned AND US taxes.
The new push for Congress to act against the hiding of corporate profits abroad would increase US efforts to track down and apprehend foreign earnings by its citizens. It might also result in corporations and executives renouncing their American affiliation or citizenship, respectively, which is an increasing trend. Senate Majority Leader Harry Reid is leading this charge and has stated that, “It’s taken far too much time….If we don’t do something about inversion, there will be nothing to do tax reform on.”
The practice of “inversion” by US Companies, referred to by Senator Reid, involves moving their corporate “domicile” to a country with lower tax rates. They often do this by becoming “partners” with an overseas firm. For instance, corporations in the United Arab Emirates enjoy a tax-free environment, which is making the UAE a global corporate hub. The most popular destinations are reported to be Ireland and the Netherlands.
The counter argument is that those companies which move their domicile through an inversion still enjoy the benefits of being largely housed in the US. For instance, they enjoy our infrastructure, our copyright protections, and many other benefits. In essence, the argument runs, they are enjoying the benefits of having their operations in the US but they are letting other people pay for those benefits. Indeed those tax havens enjoy security, and save public money because the US provides an umbrella of protection through our global and costly military.
Often those same companies support the very policies, and the political party, that is calling for higher taxes and greater public spending. General Electric is a traditional supporter of Democrats, but leads the pack for inversion by hiding a reported $110 billion in off-shore profits. Often, conservatives defend this corporate practice or call for lower tax rates to lure companies back to the US, while those same corporations finance the Democrats (and Progressive causes in general) especially General Electric.
The push to “deal with” this practice is being led by Senator Harry Reid, the Majority Leader of the Senate. The type of action required to address this practice of “inversion” would involve changes in tax laws. As all bills dealing with revenue (taxes) must originate in the House, the actions of Senator Reid are not likely to yield results. The GOP-controlled House is not likely to support such a bill.
The irony of this call by a leader in the Democratic Party is not lost on observers: Harry Reid, whose party gets millions from the same corporations conducting this practice of inversion, is calling for action against his own financial backers which know they will enjoy the protection of the party they do not back.
This practice of issuing sound bites to get votes, knowing that nothing will come of it, is an ancient and proven political technique. The only fear the proponents of this policy have is that the GOP will agree with it and then punish those corporate backers of the Progressive agenda who have no real interest in seeing the more populist and anti-corporate aspects of that program being fulfilled.
The arguments for and against the new policy push each have merit. That we have a potentially crippling corporate tax policy seems self-evident. That US corporations are avoiding US taxes while both enjoying the benefits of public spending and supporting those who want more public spending is also self-evident.
Perhaps a middle road is to lower corporate taxes to 25%, to at least match Communist China, while ending this practice of inversion, as well as corporate welfare and tax loopholes that are not available to working people.