Living in the time of the sound bite
It always amazes me how our politicians, in particular, seek refuge in the sound bite. With the magnitude of issues and depth of discord in Washington, the citizenry should hope for meaningful dialogue. Yet all we see is the perpetual distillation of issues into easily digestible, meaningless prattle. The examples are seemingly limitless, but the latest one to irk me is “economic patriotism” and its cohort “tax inversion.” The problem, of course, is the intersection of an endlessly complex corporate tax code and the wholly appropriate incentive systems designed by public and private corporate boards. Yes, corporate boards will incentivize their leadership to optimize shareholder returns, and yes, corporate leaders will find and leverage tax provisions as one of the ways to deliver those optimized shareholder returns. That is our basic economic construct. Doing so generates shareholder wealth, and, presumably, conflicts with no laws.
It all gets back to the notion of treating the symptom or the cause. While most accept that the nominal US corporate tax is among the highest in the world, critics are quick to point out that the real corporate tax is far more in line. Both statements are true, but how Congress has chosen to bridge the two, with a series of incentives, artificially manipulates corporate behavior and, in turn, markets. Whether it is energy or farming or any other incentive, Congress pushes (helps, if you will) corporations in a certain direction, introducing bias into the system. One can dispute whether this system, arguably far too manipulated by so-called special interests, is good or bad, but one cannot deny that it is what it is. Consequently, corporations, especially those not benefiting from the incentives and ‘in line’ real tax rates, find it beneficial to redomicile outside the US – tax inversion. Sure, at a sound bite level that seems economically unpatriotic, but then we ask shareholders to forgo higher returns for this notion of “economic patriotism.” Surely, some would willingly pay that price; others would not, presumably shifting their investments accordingly. This movement from a company’s stock is a steep price for corporate leaders and boards to pay because Congress and the White House are unwilling to address the underlying issue, an overly complex, burdensome and biased corporate tax code.
Some Commentary on Tax Inversions:
Interesting British perspective, you may notice that Boots, beneath the Walgreens angle on this topic, already abandoned Britain for Switzerland … something the Brit’s don’t seem to have liked, either Obama doubles down on threat to act against ‘tax inversions’ by US firms
Superseding the US-Africa Leaders Summit to identify the villains behind tax inversions: accountants Obama Joins Blame Game as Companies Flee US for Lower Tax Rates