Are corporate tax inversions unpatriotic? It all depends on what you think America is.
President Barack Obama recently unveiled executive actions that are aimed at stopping, or at least stemming the tide of, the recent inversion deals -- a practice he has deemed unpatriotic, even slamming companies taking advantage of it as “corporate deserters.”
Is this verbal rebuking fair? Is it even accurate?
To start, corporate inversions are actually pretty simple. Burger King is an American company. It is taxed by the IRS on all of its profits, no matter where its burgers are sold. That tax rate is the highest in the world.
Tim Hortons is the Canadian version of Dunkin Donuts. Being a Canadian company, it not only has a much lower tax rate, but it also pays the rate in whatever country in which it makes its profit. If Tim Hortons sells donuts and coffee in America, it pays the American tax rate. If it sells them in England, it pays the English tax rate.
A Burger King sign and a Tim Hortons sign are displayed on St. Laurent Boulevard in Ottawa, Canada, on Monday, Aug. 25, 2014. Canada's iconic coffee chain, Tim Hortons, and Miami-based Burger King say they will join forces, but will operate as independent brands to form the world's third-largest quick service restaurant company. (AP Photo/The Canadian Press, Sean Kilpatrick)
Burger King understands that it is paying the highest corporate tax rate no matter what, and so it merged with Tim Hortons and shifted its headquarters to Canada to take advantage of lower taxes all around. That’s corporate inversion.
So is this practice, which is ultimately a pursuit of lower taxes, unpatriotic?
If you are of the mind that America is simply a country with a flag and that we are here to strengthen and help the government do what’s best, then, yes, you most likely view this practice as unpatriotic.
If you are of the mind that America is a set of bedrock principles like freedom, individual rights, the free market, etc., and that government is here to protect and serve us, then most likely you do not see it as being unpatriotic.
Those of the first mindset see the government as the center of America. We are all pieces of it, joining together to fund and strengthen the government so that it can achieve great things in our name! So when a company decides to move its operations overseas just so that it can pay less in taxes and be more "greedy," they see it as abandoning and betraying this collective mission.
Those of the second mindset understand that it is not the government that makes America. America is a nation of individuals who believe in the basic and shared principles that we were founded for (founded for rather than founded on because founded on creates a foundation, founded for creates a purpose). The government is not something that we are beneath and meant to serve -- it is here to serve us!
The government, in this instance, has stubbornly kept corporate tax rates astronomically high and has induced companies to leave rather than seduce them to stay.
Whether we like it or not, we are in competition with other nations to attract businesses. We offer a product: a stable environment, fairly favorable business laws, and an adherence (somewhat) to capitalist ideals.
The price of that product? Corporate taxes. If a business decides that our product is worth the price of high taxes, then they will choose America. However, if another country, like Canada, can provide a similar product that costs a third less in taxes, then the lower cost could very well win. And it has.
Isn’t this the essence of competition? Isn’t this a basic underpinning of the free market? Is this not one of the cornerstones of our incredible economic advancement and part of the American principles we were founded for?
We cannot simply rely on our brand name -- America! -- to attract and keep businesses here. We must not only continue to provide and improve upon our product, but we have to keep the price attractive. In both of these two aspects, we are failing.
But rather than sweeten the deal and make it far more appealing to stay in or come to America, this administration has decided to punish and attack those who step out of line. Somehow, an American company paying more to the government and using less of its money for new shops, jobs or innovations, is unpatriotic.
Who will better use Burger King’s money -- Burger King or the U.S. Government? Is Burger King supposed to serve the U.S. Government, or the other way around?
Let’s also keep this issue in perspective: Despite the inflammatory rhetoric from the president, corporate inversions are only going to cost the Treasury about $20 billion over the next 10 years.
That $2 billion per year average is far less than the IRS paid out in fake identity theft refunds in 2013 alone; much less than the $3.7 billion the administration spent on who knows what for Obamacare; and a tiny percentage of the yearly fraud in Medicare. That $2 billion a year makes up about .07 percent of our country's tax revenue.
It’s not the money this administration is so concerned about, it's the midterm elections. And this is a populist message that, in true Obama form, pits companies against the regular middle-class folk.
It is also a message that is fraught with inconsistencies and hypocrisy:
The holes in this argument and position are easy to see and numerous to be found, but it all stems from the government being in the wrong position -- in charge of the people rather than in service to them.
The solution to the uptick in inversions is also quite simple: a lower corporate tax rate. Cut the corporate tax rate in half, from 40 to 20 percent, and promote it everywhere we can.
If we start acting like a business trying to draw customers in, rather than a controlling government punishing those who want out, we will be in a much better place today and in the future.
For other articles and writings by Darrell, please visit the Milk Crate.
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