Monday, September 22, 2014

Obama's attempt to block tax inversion is a mistake

It was disheartening, to say the least, that just after finishing the previous post on the new-found strength in the dollar, I should read that "The Obama Administration Issues New Rules to Combat Tax Inversions." As I noted in a post two months ago, the way to address the "problem" of tax inversions is to reform the tax code, not make inversions more difficult or impossible.

As the WSJ article notes, it's still questionable whether the administration has the authority to block inversions via executive order. But in the meantime, this is likely to add up to a disincentive to invest in the U.S. economy. Capital only goes where it is welcome and treated nicely. One essential ingredient for a strong economy is to ensure the owners of capital that they are free to come and go as they wish. Trying to keep company headquarters here by force will only work to keep headquarters from coming here in the first place.

My years living in Argentina taught me firsthand that the best way for a country to stimulate capital flight is to try to prevent capital from leaving. It's very sad to see the U.S. emulating the proven-to-fail mistakes of the Argentine government.

This probably won't keep the dollar from appreciating further, but it will add to the headwinds that are keeping the U.S. economy from realizing its full potential.


Benjamin Cole said...

Agreed. Like it or not, capitalists are not patriots, and may in fact have fiduciary obligations that obviate any type of nationalism. Lower taxes, lighter regs.

Benjamin Cole said...

BTW, corporate income taxes are paid to help finance federal agency spending. (The huge Social Security and Medicare systems are primarily financed by onerous payroll taxes.)

So, if we want to cut corporate income taxes, we need to cut federal agency spending.

It ain't PC to say it, but here is a list of federal agencies by employment. If you want to cut corporate income taxes, you should cut these agencies....

Federal Employment By Agency

Defense (civilian) 772,601
Defense (uniformed) 1, 429,995
Defense (reserves) 850,880
VA 304,665
VA (receiving monthly disability) 3,700,000
Homeland Security 183,455
Justice 117,916
Treasury 110,099
USDA 106,867
Interior 70,231
H&HS 69,839
Transportation 57,972
Commerce 56,856
State 39,016
Labor 17,592
HUD 9585
Education 4452

This is why I say the only thing preventing corporate income tax cuts is the right-wing and the left-wing, and the D-Party and the R-Party. Aside from that, it should be a breeze....

Scott Grannis said...

Note: cutting corporate income tax RATES would not necessarily result in reducing corporate income tax REVENUES if it broadens the tax base. Cutting agencies is a good idea regardless of whether corporate tax rates are cut.

Benjamin Cole said...

True. But I would prefer to cut corporate income taxes all the way to zero. I am willing to forgo corporate income tax revenues, provided we make equivalent cuts in federal agency outlays.

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