This month, however, President Obama suggested that American companies are somehow unpatriotic for participating in so-called “tax inversions” — a process by which they shield their assets by merging with a company in a more corporate-friendly country and locating their headquarters there.
“Let's embrace an economic patriotism that says we rise or fall together, as one nation,” the president said during his weekly radio address with no apparent hint of irony. This is, after all, the same man who has regularly demonized the wealthy for political gain while suggesting that business owners cannot lay claim to their own success.
Let's be clear: In an ideal world, tax inversions would be not only unthinkable but unnecessary. American companies should hire Americans, invest in America, and pay taxes in America – all the taxes required by law.
And yet, as Forbes magazine recently reported, American firms have about $2 trillion parked overseas in order to minimize their taxes – money that may enrich shareholders but is doing very little to benefit the United States. That offshore bank account will only grow as inversions become more common.
But for Obama to accuse corporate executives of un-American greed is a little like the child claiming sympathy as an orphan after killing his parents. Sheltering assets offshore is unpatriotic only to those who believe that private individuals and corporations own only what the government does not want.
And where corporate taxes are concerned, it is America's government that is guilty of greed.
America's corporate tax rate of 35 percent is the highest in the world, compared to 0 percent in such shelters as the Bahamas, Bermuda and the Cayman Islands. What's more, that tax is levied not only in income earned in the U.S., but also income from foreign countries. We're the only industrialized country to do that, which means American companies' overseas competitors face no such disadvantage.
Instead of constantly looking for ways to demonize or control the normal (that is, profit-seeking) flow of capital, Obama and other progressives should do the obvious: encourage companies to keep their ownership and cash in the United States by lowering tax rates, eliminating the morass of tax breaks and simplifying the tax code.
This approach, however, would be incompatible with the left's usual soak-the-rich rhetoric, which is more interested in indentifying politically helpful scapegoats than in actually solving problems. Once you have insisted that millions of wealthy Americans somehow aren't paying “their fair share,” it's difficult to support lower corporate taxes – even if it would create more investment, jobs, prosperity and, yes profit – the very thing that makes paying taxes possible in the first place.
It was Obama, after all, who famously defended high inheritance taxes as “fair” even after it was pointed out to him that lower estate taxes actually generate more revenue for the government. It is also Obama, as Bloomberg News has pointed out, who has accepted large donations from supporters who have participated in tax inversions.
And it is Obama himself who bears much of the blame for the very practice he now condemns.
One of the most recent tax inversions involved a company called Medtronics, a maker of the sort of medical devices that are now taxed at 2.3 percent under the “Affordable” Care Act. Why should anyone be surprised when businesses – or liberal actors – make decisions they perceive to be in their own best interest?
Instead of browbeating Americans for resisting excessive taxes that are both squandered and woefully inadequate to support out-of-control spending, politicians should worry about structuring the tax code and all of government to promote enterprise and prosperity, not punish it. Up to a point, the desire to help the poor is a noble one – but that cannot truly be accomplished without the willing participation of the people who create jobs and wealth.
Driving some offshore and demonizing those who remain will not do that, as the current shaky state of America's economic “recovery” makes clear.