Late last month, the House Ways and Means Subcommittee on Select Revenue Measures held a hearing on corporate inversions–the process by which an American company avoids the tax bias against its overseas income by re-incorporating to a tax haven nation. The hearing was remarkable in one respect: the way the congressmen considered the problems of US businesses at the hands of an unfair US tax code was the same way you might consider the problems of insects as they smash into your car’s windshield as you drive down the interstate: that is, you don’t. All present acknowledged that US firms are leaving the US because of unfair corporate taxes and all resolved there was nothing they were willing to do about it.
That’s not to say that the congress is willing to turn a blind eye as corporations continue to re-incorporate to safer shores. On that point, there was plenty of willpower to act. According to Connecticut Representative Nancy Johnson, sponsor of a legislation that would place a moratorium on corporate inversions, “They [America’s business] need to pay their fair share of American taxes.” Representative Richard Neal, sponsor of a bill that would make inversions outright illegal, was more blunt, calling US firms “unpatriotic” for leaving US shores for greener pastures.
Unpatriotic? The reason that US firms seek protection from tax havens is basic: yet again, the US tax code is destructive to business. Unlike other nations, the US taxes the foreign income of US corporations. This puts US firms at a grave disadvantage with firms from other nations. Yet according to subcommittee chairman Jim McCrery, the Congress won’t take on the fundamental tax reform needed to fix the problem of unfair taxation, “so forget it.”
Forget fundamental tax reform? Maybe we should forget McCrery. After all, McCrery and his congressional brethren have been calling for tax reform for years. Remember former House Ways and Means Chairman Bill Archer promising to tear the current tax system “out by its roots”? Well, the tax code must have one heck of root system because despite astronomical compliance costs, the double, triple, and even quadruple taxation of income, the bias against foreign income, the bias against savings and a whole host of other injustices, we are still saddled with this lame pathetic system. But why?
I think it’s for the simple reason that the current income tax system does an excellent job of hiding the true cost of government from citizens and that serves people who like to spend other people’s money. I remember one of the key arguments against the national sales tax was that in all the proposals that attempted to raise the same amount of revenue as the current tax system, the rate was seen as being so high that it was claimed Americans would riot in the street once they realized just how much they pay in taxes. Sure, they probably would. They would be right to do so.
Contrary to Representative Neal’s blustery condemnation of US corporations, it is entirely patriotic to want to keep what you earn. Our government today simply taxes and spends too much, most of it outside its legitimate mission. I salute US firms that have the courage to say that the tax system is broken and that they aren’t going to wait around while the congress delays. I think it’s ironic that these firms would be called unpatriotic for their courage; after all, it was a handful of tax protestors who had the audacity to challenge a despotic, unresponsive system that lead to the creation of America some 226 years ago. Today we have it much easier–all we have to do is think and vote.
