Kevin Williamson‘s latest column at National Review Online tackles the political furor over corporate “inversions.”
Merging with a small firm overseas and relocating the corporate headquarters to a friendlier tax environment is called a “corporate-tax inversion,” and the maneuver, though entirely legal and ethical, cheeses off the sort of people who’d like to get their hands on a chunk of that corporate cash and use it to fund favors for their political supporters. (Also legal, though not obviously ethical.) Notice that U.S. companies are not relocating to Caribbean tax havens but instead to developed, prosperous, high-wage countries such as Ireland, Switzerland, and Canada, which have tax rates that are high relative to Gibraltar’s or Montenegro’s but low relative to the United States’.
The result is that many U.S.-based companies keep their overseas profits overseas, thereby delaying the payment of rapacious American taxes. Apple is the most famous cash-hoarder; if its more than $200 billion in sidelined cash were a separate company, it would be a firm somewhere between Chevron and Exxon in value.
We — we Americans, the investors, workers, and entrepreneurs behind the greatest economic engine the human race has ever seen — are denied the benefits that might be derived from the success of American firms abroad because of the greed and stupidity of American politicians. Never mind the value of that $2.1 trillion as cash today; imagine what it might have produced if it had been repatriated and reinvested in new and expanded enterprise. Not every investment is going to be a home run, of course, but: Google began with a $100,000 investment; Apple was launched on less than $1 million; Facebook began as a $15,000 project.
Politicians create economic incentives for firms to do certain things, such as park their foreign earnings abroad, and then howl when companies respond rationally to the incentives the politicians created. This is usually followed by denunciation, which is the mode the Democrats and some Republicans are in, lambasting as “unpatriotic,” “deserters,” “traitors,” and guilty of economic “treason” the companies in question. (You’ll recall the ritual denunciations of Mitt Romney as an “economic traitor.”) The next step is the threat to use force against firms that won’t toe the political line. Former secretary of labor Robert Reich, a leading progressive voice, has suggested stripping dissident companies of legal protections for their intellectual property. Hillary Clinton has suggested simply seizing the assets of companies that relocate abroad. (She calls this an “exit tax,” but it is, in fact, ransom.) Jeb Bush and quondam Democrat Donald Trump both have put forward punitive measures to discourage tax inversions.
The problem is plunder by politicians, and the answer politicians are giving is: more plunder.
