by Mitch Kokai
Senior Political Analyst, John Locke Foundation
Jack Lew, late of Citigroup and currently of the Obama administration, has issued a call for “economic patriotism.” This phrase, which is without meaningful intellectual content, is popular in Democratic circles these days. Ted Strickland, the clownish xenophobe and nearly lifelong suckler upon all available taxpayer teats who once served as governor of Ohio, famously denounced Mitt Romney as a man lacking “economic patriotism” during the 2012 Democratic convention. President Barack Obama has used the phrase. It’s not that I do not appreciate lectures on “economic patriotism” from feckless former executives of dodgy Wall Street enterprises, guys who get rich monetizing their political celebrity, and second-rate ward-heelers from third-rate states; it’s just that nobody ever has been able to explain to me what the term is intended to mean.
The proximate cause of Mr. Lew’s distress is the fact that many U.S. firms either are up and leaving the country entirely or are acquiring foreign competitors in order to reorganize themselves as companies legally domiciled in friendly tax jurisdictions. U.S. pharmaceutical firms in particular have been in a rush to acquire partners in order to escape punitive U.S. corporate taxes for the relatively hospitable climates of Ireland, the United Kingdom, and the Netherlands. Walgreen’s, a venerable firm that, like the lamentable political career of Barack Obama, has its origins in Chicago, is considering abandoning its hometown of 113 years for Switzerland. Eaton, a Cleveland-based manufacturer of electronic components, moved to Ireland. The list goes on.
Note that in spite of the would-be class warriors’ “race to the bottom” rhetoric, these firms are not moving to relatively low-wage countries such as China or India. Switzerland is not a Third World hellhole — especially if your immediate point of comparison is murderlicious Chicago, which endures more homicides in a typical July than gun-loving Switzerland sees in a typical year. The Netherlands is not Haiti, and Ireland is not Bangladesh. Mr. Lew is correct in his assertion that relative tax rates are a main driver in the desire of firms to relocate, though it is not the only driver — arbitrary and unpredictable regulation, a lousy tort environment, and unstable public finances surely play a role as well. The United States has the highest statutory corporate-income-tax rate in the developed world, and though effective rates are typically lower than the nominal rate, that is more of a bug than a feature: Our corporate-income-tax regime is riddled with handouts and political favoritism. Crony capitalism is not an inspiring condition for firms looking to make long-term investments.