The subject of tax inversion, in which American firms avail of lower tax rates in foreign countries by merging companies in those countries, has become very topical in the last couple weeks thanks to a decision by Abbvie, a drug company, to merger with Shire, an Ireland-based firm and move its headquarters overseas. One of at least 47 tax inversions in the last decade, the Abbvie-Shire deal is the largest such action yet, worth $54 billion. Perhaps unsurprisingly, President Obama and Democrats in Congress have become apoplectic with rage at the audacity of a business making a prudent decision to escape bloodsucking taxes.
The president has spewed a load of bile at all tax inverters, saying that they “are essentially renouncing their American citizenship so that they can ship their profits overseas to avoid paying taxes—even as they benefit from all the advantages of being here in America.” Treasury Secretary Jack Lew has echoed this sentiment, calling for businesses to not move abroad and to show “economic patriotism” (a terms that carries some unsettling notes of mercantilism). Obama and co. have decided that this subject is a major voter-winner in the run-up to the midterms, so be ready for more business-bashing in the months ahead.
What is so strange about the attitude of Obama and his cronies is that they seem dead set on blaming the businesses for “not playing fair” and running off to more business-friendly lands. But that is exactly what America has traditionally done to other countries. As a president set on making America a more “responsible” player on the world stage, he turns to threats of economic violence awfully quickly. He seems perfectly at home using America’s economic clout to aid American business abroad through entities like the Export-Import Bank. Apparently, businesses are only “patriotic” when they are friendly to his administration.
Also, whatever happened to Obama’s whole “corporations aren’t people” shtick? Are we to believe that a corporation has a duty of patriotic loyalty (economic or otherwise) but is not entitled to speech? Or is he referring to the managers and owners who took the dastardly action of defending their private interests against the anti-business, anti-market attitudes of the present administration? Whatever Obama means, he is totally off the mark.
The simple fact is that business is international. Corporations are frequently not solely of one country, and they certainly are not the exclusive property of one country. Moving to a friendlier climate is not reason to further restrict free trade, exact ruinous retroactive regulations, and to attack the businesses that are simply responding to economic pressures. Yet those are the exact responses the Obama administration is considering.
The problem with the way Obama and his friends in Congress are responding to tax inversion is that they are blaming the businesses for responding to pressures created by the government. America has prospered thanks to its open economy and the easy business environment it nurtured. Those advantages have been eroded by the twin forces of increasing taxes and regulations at home and their relative decline abroad.
Businesses leaving is a sign that something has to change. Obama should take the hint and start restoring free enterprise to America. If he continues down the path he’s treading, he will only succeed in driving more firms overseas.