President Obama is telegraphing that his strategy to hold the Senate majority and win swing House seats this fall will be to play the economic populism card, pitting what he will portray as corporate tax dodgers against middle class families feeling anxious in a still-too-soft economy. Expect entrepreneurial job creators to be caricatured in campaigns ads as unpatriotic exploiters of tax loopholes. Some Senate Democrats see a political wedge issue ripe for election season.
We’d all be better served if the president and his congressional allies would instead concentrate their efforts on reforming a tax code that is pushing U.S. jobs out to sea.
At issue are something called inversions, which occur when companies seek to lessen their tax exposure by merging with foreign firms and establishing their headquarters overseas. Corporate taxpayers don’t employ this strategy because they’re looking for more stamps in their passport; they do it because the U.S. corporate tax code is a job-killer.
At 35 percent, the U.S. has the dubious distinction of having the highest corporate tax rate in the industrialized world. Among all nations, only the United Arab Emirates and Chad have it worse, so we’ve got that going for us. Is it any wonder that businesses would be looking to set up shop in a friendlier environment?
The Obama administration is reported to be studying ways to prevent future overseas reorganizations. According to The Wall Street Journal, the administration is intrigued by the ideas of Harvard Professor Stephen Shay, who asked, “What could be done with regulation rather than legislation?”
This is the equivalent of duct-taping the Titanic.
I’ve got a better idea: Make the U.S. tax code simpler, flatter and fairer.
Until we have a tax code that will allow U.S. businesses to better compete in the world economy, employers will continue to seek ways to lessen their tax burden. That’s not unpatriotic, it’s reality.
But wait, you say. Aren’t there a bunch of big companies that have a much lower effective tax rate? Who really pays the top rate?
Under any system, corporate CFOs should not be engaged in fiscal gymnastics to lessen their exposure to high U.S. taxes. Transparency and simplicity should characterize our tax code. Even USC Professor Edward Kleinbard, one of the chief apologists for the crowd that argues corporate taxes really aren’t that bad as a result of companies’ “aggressive tax planning technologies” (whatever that means), acknowledges that our tax code is “highly distortive and inefficient.”
I will agree with the president that this economy, despite its bright spots, is still not producing good jobs fast enough. So let’s do something about it.
Let’s create a tax code that allows companies to stay home, to grow here and to employ more Americans here. If we want to get America back to work, we have to make America a great place to invest and grow a business.
Closer to home, states like Arizona are doing all they can. We’re a right-to-work state, and over the last several years our governor and Legislature have reduced corporate taxes, improved the business property tax picture, made the tax code more attractive to exporters and startups, and have instituted some smart reforms to the civil justice system. But despite their best efforts, the states can’t get this economy firing on all cylinders on their own. Washington needs to pull its weight.
In a California speech last month, the president said, “Economic patriotism says it’s a good thing when we close wasteful tax loopholes and invest in education, and invest in job training that helps the economy for everybody.”
Mr. President, if we want to invest in those priorities, we need the revenue to do so. But under the current system, there’s too much capital parked overseas.
The president wants to throw up roadblocks to future inversions. But he should be removing roadblocks to domestic job growth by reforming the corporate tax code.
Glenn Hamer is the president and CEO of the Arizona Chamber of Commerce & Industry.
The Arizona Chamber of Commerce & Industry is committed to advancing Arizona’s competitive position in the global economy by advocating free-market policies that stimulate economic growth and prosperity for all Arizonans. http://www.azchamber.com/.