I’m no expert on international business.
But there seems to be an inherent illogical in the left’s approach to taxation and corporations.
“Big business does not paying its fair share!” “Income inequality!” “The wealth gap has grown massively!” “Occupy Wall Street!”
Crony capitalism is certainly a problem and oddly enough Donald Trump of all people rode the populist wave of discontent into the White House (his opponent, meanwhile, couldn’t seem to convince people that she wasn’t still in bed with America’s kleptocracy). As the WSJ pointed out the other day, Trump’s enemy is not globalism, but mercantilism in which corporations lobby government acquire subsidies, trigger bailouts, and increase regulations that only their army of lawyers can comply with and subsequently hamstring competitors (the little and middle guy), thereby increasing their coffers, and only then doling out the incidental sops to the rest of us.
She found this distasteful and un-American. I found it amusing. A classic, American-disdaining, U.N.-loving liberal, she was suddenly a nationalist.
Obama, who’s feelings about America seem rather ambivalent, short-circuited the Pfizer deal (pen and phone):
Companies like Pfizer are “fleeing the country just to get out of paying their taxes,” the president said. “So I am very pleased that the Treasury Department has taken new action to prevent more corporations from taking advantage of one of the most insidious tax loopholes out there.”
Who wouldn’t want to flee the nation with one of the highest corporate tax rates in the world?
This is the double-standard that drives me nuts.
Corporations are just like you and me when it comes to incentives: they look for the best deal. Why should we expect them to act differently than us? If given a choice between buying a gallon of milk from Store X for $2 and buying the same gallon of milk from Store Y for $4, what would you choose? For corporations, taxes are the price of doing business. Corporations, just like us average Joe’s buying milk, choose to purchase operation rights in a given country based on the price (taxes) and goods offered (rule of law, political stability, infrastructure, etc.). In this way, countries compete for corporations and their dollars, just like corporations compete for customers and their dollars. Ireland says, “Hey, look, you can set up shop here and do business for x% less than you can do it in the USA.” Is it any wonder that a company like Pfizer would look to relocate?
The big difference between the little guy and the corporations is that corporations have the financial leverage to diversify and go abroad while the rest of us typically don’t have such flexibility. But here’s the catch, even if you stop them from going abroad, that doesn’t solve the problem. The corporations still have the financial leverage to employ an army of lawyers and lobbyists to A) avoid taxes and B) use regulatory agencies to suppress competition. Both of these things ultimately drive up consumer costs and increase corporate profits.
So how do we keep them here while reducing consumer costs? The narrative has been that they’re leaving because they can get better deals abroad (cheap labor in Asia, for instance) and isn’t that too bad, but Americans will just have to adapt. That’s fatalistic. Why not compete for corporations’ business? Give them a better deal. Cut taxes. But that also must be followed up by a decrease in regulations and thereby the incentive for corporations to engage in regulatory capture.
Simply put, we’ve got a first world country, make it easier for them to work here.
Now, are all the manufacturing jobs from China going to magically reappear? No, but who knows what will appear if you encourage companies to invest in the USA. Cut taxes, cut regulations, and let the economy roar.
All of that said, I have yet to hear a liberal explain how the status quo tax and regulation regime helps the economy. If anything, their mantra is to increase the cost of doing business in America. I can’t figure out if they’re just being stupid or cynical. I tend to believe the former. Never ascribe to malice what can better be explained by ignorance.
Climate Change Kung Fu
I took this line of argument the other night on the roof with my flamboyant gay neighbor and he was indeed flummoxed. But, because I’ve been a salesman for Trump for some time, I tossed in a bonus for the hapless fellow.
In the course of the conversation he expressed grave concern over Trump denying climate change. After noting that Trump had declared he was rethinking his position with the help of experts, I said to him, “Look, dude, China and the Third World don’t give a crap about global warming. So what can we do? Cut corporate tax rates, get corporations to come back here, and then you can regulate better than the Chinese or Mexican ever will.” He nodded, yeah, that made sense.
Granted, climate regulations are like taxes in that they deter investment, but corporations get a bang for their buck: they get to look like the good guys to their customers for supporting climate change initiatives.
Anyway, at the very least this opens up the possibility for a curious sort of political bird: the climate change fanatic that also is an advocate for cutting corporate taxes.
Trump certainly has done some strange things to the political conversation.