The problem with the Berlin Wall, it has been said, was that it was the first wall built to keep its people in rather than invaders out. President Obama has announced he will commence building his own Berlin Wall, targeted at keeping American businesses operating in the U.S.
The president announced Monday night that he will use regulatory authority to crack down on tax inversions. “We’ve recently seen a few large corporations announce plans to exploit this loophole, undercutting businesses that act responsibly and leaving the middle class to pay the bill,” said a presidential statement.
Translation: he can’t get Congress to pass more business-crushing policies and tax increases so he’s taking executive action to keep companies from legally lowering their taxes.
A tax inversion is when a U.S.-based company merges with a foreign company, and lists that foreign country as its new headquarters, even though management may still operate out of the U.S. (For a more detailed discussion see the U.S. Chamber of Commerce.)
Why would a patriotic, U.S.-based company do that? There can be a number of reasons, but one of the primary ones is to lower its taxes. The U.S. has the highest corporate income tax rate in the developed world, 35 percent, and when state income taxes are included, that rate jumps to nearly 40 percent.
Reforming the U.S. tax corporate income tax has become one of corporate America’s number one agenda items. Since companies, from the smallest to largest, are in a globally competitive business environment, the size of their tax bill can be the determining factor as to whether they can compete with other, foreign-based companies.
As the president said, only “a few large corporations” have inverted, or tried to. But Obama fears the exodus will grow.
Like the communists’ effort to keep East Berliners from fleeing their broken economy, Obama, joined by New York Senator Chuck Schumer and many other Democrats, is trying to keep U.S. businesses from fleeing the broken U.S. tax code.
The communists had no intention of giving people the freedom they wanted, so they built a wall to keep them in. Obama has no intention of giving companies the freedom they need to compete against other low-tax countries, so he too will try to build a wall—a regulatory wall that will likely drive even more companies to look for the exits.
September 23, 2014