America is increasingly reaping the rotten fruit of an uncompetitive tax code that our politicians seem unwilling to reform.
Just look at Burger King’s decision to relocate its tax base to Canada. Or Chiquita to Ireland. Or Mylan to the Netherlands. Or … well, you get the point.
These so-called tax inversions are the fashionable thing for U.S. corporations to do, and they are almost always spurred by a desire to escape America’s overly complex and confiscatory tax code.
The inversion trend, the offshoring of American jobs, creative accounting, tax havens – these are just a few of the perverse activities companies engage in when taxes are too high and the system too complex.
FREE ENTERPRISE IS KEY
The results of these tax optimization activities are all too familiar for folks in northern Maine, who have suffered from a decades-long exodus of large-scale manufacturers. But political solutions have been limited to lip service for the dinosaur of protectionism and Band-Aids like Trade Adjustment Assistance checks. (I’m looking at you, Mike Michaud.)
Elected officials must recognize that what helps millworkers in Millinocket is the same thing that helps waitresses in Portland and entrepreneurs in Old Town: thriving free enterprise. A thriving free-enterprise system, not higher taxes to fund more government programs, is the surest path to happier lives for all Mainers.
How do we get there?
Repealing wrongheaded regulation is part of it – government should be a partner with entrepreneurs, not an adversary. We should, for example, spend less time worrying about entrepreneurs like Reilly Harvey, whose innovative Penobscot Bay food boat was threatened by a health inspector because it lacked a sink.
But the biggest obstacle to flourishing free enterprise right now is the tax system.
Maine workers and small-business owners should be allowed to keep as much of their money as possible – locally, our personal income tax should be greatly reduced, if not abolished. At the federal level, the corporate income tax rate must be reduced to competitive levels.
At almost 40 percent, the average corporate tax rate in the United States is the highest of all civilized countries. Of course, few if any American companies pay the full corporate rate – the Swiss-cheese tax code is fraught with esoteric loopholes and exemptions – but that’s part of the problem, too.
PEOPLE PAY TAXES
Time spent lobbying Congress for preferential treatment and complying with the ever-growing tax code is time that could be spent increasing productivity, growing and innovating. And we don’t get much for hampering our economy with an onerous labyrinthine corporate tax: It accounts for roughly 9 percent of federal revenue.
In contrast, Canada’s combined federal and provincial rate, at 26.3 percent, allows Canada-based businesses to be far more competitive in an increasingly globalized marketplace. If policymakers don’t act swiftly to bring down our punitive rate and simplify the system, we’ll only see more Burger King-style inversions. And research shows that slashing or even eliminating the corporate income tax could pay for itself while increasing domestic investment and wages.
Yet liberals scoff at the idea. Massive corporations should pay more, they say. They view corporations as avaricious Scrooge McDucks who need only dip into endless chambers of gold to fund the latest quest for social justice, income equality or whatever.
But corporations don’t pay taxes – only people do. Whatever tax is levied on a corporation gets passed along to consumers, investors and workers. And if the tax is high enough for long enough, corporations can and do flee.
For President Obama, it flies in the face of “economic patriotism” to want to keep more of your own money or deliver returns to investors. Which is another way of saying he thinks the purpose of business is to honor government and generate tax revenue.
STOP THE INVERSIONS
In mistaking high taxes for patriotism, the president and his liberal ilk imply that those who disagree with confiscatory wealth redistribution are not American enough. It’s a kind of neo-liberal McCarthyism, complete with a new commandment for Washington’s technocrats: Punish the corporate deserters!
The obvious way to prevent inversions – lowering the corporate tax – does not comport with the liberal-progressive ideology. This ideology demands not what’s best for the economy or the poor or the middle class, but policies that address the straw man of inequality by making the rich poorer.
Stopping the inversion trend by lowering corporate taxes should be just the start. Long-term prosperity requires that we reverse the trend. That means making Maine and the entire U.S. an attractive place for entrepreneurs the world over to start and grow businesses.
This means abandoning the failed ideology that fosters inversions in the first place.
Steven E. Robinson is editor of TheMaineWire.Com and a policy analyst for the Maine Heritage Policy Center. He can be contacted at: