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It’s no mystery why American companies have stockpiled over $2 trillion of overseas earnings in foreign bank accounts. If they bring it to the United States, the IRS would grab 35% of it. That’s the US corporate tax rate – the highest in the developed world, double the average in EU nations.
Medtronic found a creative way to repatriate its cash, allowing it to bring money to the USA subject to just a 12.5% tax. The company acquired Covidien, another, smaller medical device firm in Ireland and will establish its formal headquarters in Dublin, thereby slashing its tax rate by two-thirds, and leaving it with far more cash for plants and equipment, innovation, hiring and keeping workers, and tapping new markets.
Pharmaceutical, biotechnology, healthcare and other companies have concluded or are pursuing similar “tax inversion” strategies. The actions have outraged the White House, “progressive” activists and many Democrats in Congress – except when President Obama’s BFF Warren Buffett engineered Burger King’s acquisition of Canada’s Tim Horton café and bakery chain.
The President says the practice is “unpatriotic” and “immoral,” calls the companies “corporate deserters,” and says businesses must start acting like “good corporate citizens.” Congressional Democrats have issued similar denunciations and want inversions prohibited or punished. They’re barking up the wrong tree.
The proper solution is comprehensive tax reform. However, Republicans want to address both corporate and individual tax issues, Democrats insist that only corporate taxes on the table, and Mr. Obama is typically not inclined to do the hard work of forging bipartisan compromises. Instead, he wants his IRS and Treasury Department to review “a broad range of authorities for possible administrative actions” and ways to “meaningfully reduce the tax benefits after inversions take place,” as one Treasury official put it.
Companies, workers and investors are bracing for the coming executive fiats. The diktats epitomize a huge problem that neither Congress nor the courts have been willing to address, but which continues to drag our nation’s economy and employment into the abyss: an out-of-control federal bureaucracy that is determined to control virtually every aspect of our business and personal lives – at great cost, for few benefits, and with little or no accountability for mistakes or even deliberate harm.
Of course we need taxes, laws and regulations, to set norms and guidelines, safeguard society, punish miscreants and pay for essential government programs. No one contests that. The question is, How much?
What we need right now is regulatory patriotism – and Executive Branch morality, citizenship, and fealty to our Constitution and laws. The federal behemoth today is destructive, and unpatriotic.
- The confiscatory 35% corporate tax rate is embedded in a Tax Code that’s 74,000 pages long, counting important cases and interpretations. It totals some 33 million words (compared to 788,280 in the King James Bible) and is loaded with crony corporatist provisions and complex, indecipherable language.
- A 906-page, 418,779-word (un)Affordable Care Act that has already metastasized into more than 10,000 pages of complex, often contradictory regulations, with more interpretations and clarifications to come.
- The 2,300-page Dodd-Frank law has already spawned over 14,000 pages of banking and financial rules.
- Over 175,000 pages in the Code of Federal Regulations are coupled with more than 1.4 million pages of tiny-type Federal Register proposed and final rules published just since 1993, at the rate of over 71,000 pages per year. Doctors, patients, insurers, businesses large and small – much less average citizens – cannot possibly read, comprehend or follow this onslaught.
- At least 4,450 federal crimes are embedded in those laws and regulations (with some 500 new crimes added per decade) – often for minor infractions like failing to complete or file precisely correct paperwork for selling orchids or importing wood for guitars. Neither inability to understand complex edicts, lack of knowledge that they could possibly exist, nor absence of intent to violate them is a defense, and the “crime” can bring military swat teams through doors, and land “violators” in prison for months or years.
- Production Tax Credits and other sweetheart “green” energy subsidies and grants total some $40 billion a year – for ethanol producers and folks like Tesla CEO Elon Musk and Mr. Tom Kiernan, who is both CEO of the American Wind Energy Association and treasurer of the League of Conservation Voters, which gives millions to mostly Democratic candidates to perpetuate the arrangements.
- American businesses and families must pay $1.9 trillion per year to comply with these mountains of regulations. That’s one-eighth of the nation’s Gross Domestic Product; it’s almost all the corporate money now held overseas: $5,937 a year for every American citizen – and far more than the $1.6 trillion in direct economic losses that re-insurer Munich Re blames on weather-related disasters between 1980 and 2011.
- $353 billion of these regulatory costs are inflicted by the Environmental Protection Agency alone, say Competitive Enterprise Institute experts who prepared the $1.9 trillion regulatory costs analysis for 2013.
Even worse, these criminal complexities and costs are being imposed by increasingly ideological, left-of-center, anti-business “public servants” who target conservatives and are intent on advancing President Obama’s agenda of “fundamentally transforming” the United States. They are determined to redistribute wealth, pit economic and ethnic groups against each other, close down coal-fired power plants, ensure that electricity prices “necessarily skyrocketing,” and stop drilling, mining, ranching, fracking and pipelines.
Poll after poll finds Americans focused on jobs and the economy, and on ISIL, terrorism and Ebola. Not so our federal government. Secretary of State John Kerry says climate change is “the world’s most fearsome weapon of mass destruction,” posing “greater long-term consequences” than terrorism or Ebola. For EPA the biggest issues are global warming, “environmental justice” and “sustainable development.”
How is the US economy responding to these policies? Median household income is down $2,000 since Obama took office, while costs of living continue to rise. Despite the subsidies, electricity prices have soared 14-33% in states with the most wind power. Some 45 million Americans now live below the poverty line – a 50% increase over the 30 million in poverty on inauguration day 2009.
While the official unemployment rate is now under 6% for the first time in six years, University of Maryland economist Peter Morici puts the real jobless rate at closer to 20% – which includes the millions who have given up looking for work, those who want to work full-time but must settle for part-time, and students enrolled in graduate school because their employment prospects are so bleak.
The labor force participation rate now stands at 62.7 percent, the lowest level in 36 years, with over 92 million adults not working. Over the past six years, one million more Americans have dropped out of the labor force than have found a job.
Indeed, a hallmark of the Obama recovery is its unique ability to convert three full-time jobs with benefits into four part-time positions with no benefits – and then say unemployment is declining.
It’s hardly surprising that dozens of senators and congressmen who voted with Mr. Obama 90-99% of the time now want to be seen as “moderate independents” – and do not want to be seen with the President.
But as President Obama told Northwestern University students October 2, “Make no mistake, [my] policies are on the ballot, every single one of them.”
He’s absolutely right. So are his economic and employment records. Time will tell how many people remember that when they vote November 4.