One of the worst things about working in Washington is that it’s so easy to get frustrated about the fact-free nature of political debates.
For instance, there’s now a big controversy about companies “re-domiciling” or “inverting” from the United States to lower-tax nations such as Ireland and Switzerland.
This should not be controversial. Unless, of course, you think businesses shouldn’t be allowed to move from California to Texas. Or from New York to Tennessee.
And even if you somehow think taxpayers don’t have the right to legally protect themselves from punitive taxation, there are two very stark facts that should guide the political debate.
First, the United States has the world’s highest corporate tax rate, which undermines job creation and competitiveness in America, regardless of whether there are inversions.
Second, the United States has the most punitive “worldwide” tax system, meaning the IRS gets to tax American-domiciled companies on income that is earned (and already subject to tax) in other nations.
This is why, as I explain in this video, that the politicians who are protesting against inversions are putting demagoguery above jobs.
One of the most important aspects of this debate, though, doesn’t involve the intricacies of corporate taxation. Instead, it’s a broader public finance point about whether it’s good public policy to disadvantage shareholders, workers, and consumers in order to give politicians more money to spend.
In my mind, that’s a no-brainer.
P.S. Kudos to Rand Paul for being one of the few politicians who is willing to publicly defend companies that engage in legal tax planning.
[…] Companies also move from one country to another so they can protect workers, consumers, and shareholders from bad tax […]
Dick:
All of your theoretical outcomes from a ‘ZERO INCOME TAX ON BUSINESSES’ can be summed up in the one word that preceded them all – IMAGINE.
You assume that all those things might happen not considering the insatiable greed driving many of the top corporations that are whining about international taxation. You assume that these corporations will invest the freed up sums back into the U.S. – Seriously, like the boardrooms are going to be filled with conversations about bringing the jobs back to the U.S. instead of keeping them in some third world sweatshop for less. Like the boardrooms are going to be abuzz about how their corporations are going to raise wages to a livable level for the employees in the States.
IMAGINE…! Keep imagining because you’re living in a dream world.
[…] In other words, the problem is obvious and the solution is obvious. […]
[…] that “evil” and “greedy” corporations are bring traitors by engaging in corporate inversions so they can leave […]
Dirk, what Clarence also does not understand is that taxing corporations also increases the hardship on all classes in several ways. Less jobs, lower wages, and higher prices just to keep the same profit level and that is just for starters. Many people also fail to realize the impact that the tax has on their retirement investments.
Clarence, Your comment that “the top 10% have all the money so they must pay up” is mob mentality. Let’s all grab our pitchforks and ransack and steal from the rich folks. They don’t deserve all that wealth they have. It is ours for the taking. That was Russia 100 years ago.
After all, what exactly is the policy purpose of taxing business income? It should be clear to everyone that increasing the cost of business will result in less business. Is that the purpose? Is that why we tax business income? Are businesses like cigarettes and giant sugary soft drinks – bad things that we want less of? Are we making policy decisions based on the Elizabeth Warren’s simpleton idea of requiring businesses to pay their fair share? Is this a “you didn’t build that” concept?
Here’s the best tax system for business: ZERO INCOME TAX ON BUSINESSES. Tax the owners when they take money out of the business, but no income tax on the business itself.
+ Imagine the money held overseas by U.S. multi-nationals flowing back into the U.S.
+ Imagine the inversion of these inversions – companies will be coming TO America instead of leaving it
+ Imagine the influx of foreign investment in the U.S.
+ Imagine the economic growth that will occur when businesses do not have to say of their bottom line “$4 for you (the government) and $6 for me (the business which earned all $10)”
+ Imagine the money corporations will save when they can eliminate their tax compliance departments
+ Imagine corporations making investment decisions based on market considerations without having to worry about the tax implications
+ Imagine the investment that would follow from the cash inflow from all of the above
+ Imagine the jobs created when businesses expand
+ Imagine what happens to crony capitalism when the value of tax loopholes goes to ZERO and the politicians have nothing to offer their big business cronies
+ Imagine the corporate lobbying scene in DC almost drying up
+ Imagine the corporate tax division of the IRS vanishing completely and the costs that saves the rest of us
As I understand it, corporate income tax accounts for only 10% of federal revenue anyway.
Make it so.
I agree Ned, the current system penalizes people that work hard to make more. We need, dare I say a “far tax system”, and the current system does not provide incentives to earn. The Capital Gains, Estate and the Gift tax system is a clearly unfair burden. Most people do not even understand how the capital gains tax affects their retirement.
I also believe we need more health care reform and I would support a Universal Free Market Healthcare system. Without the free market we would continue to see more government waste and based on how the government has ran other systems I would not trust them to handle this efficiently. The free market system would help the system to become more efficient and therefore provide better healthcare for all.
I will be looking forward to your video!
Dan:
It’s time for a full on discussion of what that future “Tax System” in the title would be like:
Territorial taxation – Yes
Flat Tax – Yes, but what form? Is it possible to use the best parts of the “Flat Tax” and the “FairTax” as basis for a hybrid flat tax?
Progressive – Political necessity, since a true flat tax shifts the burden of taxes paid from the wealthy, but how to implement while preserving the savings inherent in a flat tax?
Incorporate Federal Means-Tested support – Yes, so that no one pays an effective tax rate higher than the flat tax rate. No more disincentives and no benefit cliffs.
Capital Gains, Estate, and Gift Taxes – Gone, but done in a way that reduces future government liabilities.
YouTube video coming in September!
The moderator in the video states that “Corporate inversions will cost $17 billion over the next decade.”
That’s got to be wrong. <– Peanuts!
Clarence:
I am also an advocate for Universal Healthcare, however, it must be Universal Free Market Healthcare.
It is a given that governments are horrible at management, because they do not have a profit brake on spending. In a (non-crony) free market, the only way to generate a profit is to create value for consumers, so health care activities must be consumer directed.
The role for government in bringing together a workable universal system, is to provide resources that can be freely used to purchase healthcare services. However, if you provide funds only to the poor you create disincentives against work.
A better solution is to provide either cash or vouchers to all citizens. $3,000 per citizen over 21 could be paid out of money currently being spent in a variety of programs and on the healthcare tax deduction. Those with no income would have funds to buy basic coverage, those with income would have the equivalent of a $12,000 annual deduction (assuming a 25% tax rate), regardless of how much money they actually spend on healthcare.
Those on Medicare would see no net change in that Medicare support would be reduced by $3,000.
I agree that we need to immediately move up dates when Social Security and Medicare begin, however, we should phase it in at the same rate that we lower taxes. Savings from the lower taxes that go into Retirement Accounts should be targeted to make up the difference.
In an ideal economic world, which does not exist either for libertarians or socialists, there would be no need for redistribution. However, we live in our world, where current redistributed funds are horribly mismanaged and create horrible disincentives. Let’s fix that!
MEDICARE Obama said that he is committed to a broad effort to restrain the national debt and Medicare is on the table. The most commonly discussed reform is increasing the age from 65 to 67. Others are âmeans testingâ on the richest. I agree with both but what is needed is Universal Health Care for all. That means there can be competition for medicine and services. The hospital coats are awful. UHC not OBAMACARE The Debt has now hit $18,000 Billion. That means it has tripled since Clinton last year. 5800B to 11,900B to 18.000B. The top 10% have all the money so they must pay up. No other option except cutting needed services clarence swinney