Dateline: Kuala Lumpur, Malaysia
You knew it was coming.
The concept of corporate inversions has been all over the news as of late. We’ve talked before about how US companies are becoming increasingly interested in renouncing their corporate citizenship.
For years, we’ve been reminded by the “American exceptionalism” crowd of all the immigrants who came from alleged backwaters across Europe and elsewhere to seek their own version of the American dream in The Land of the Free.
Over the years, I’ve spoken to a number of recent immigrants who fled places like the USSR and Yugoslavia in search of streets paved of gold in the United States. Today, those immigrants feel like the joke was on them.
And they feel it’s becoming increasingly difficult to leave. Just last month, we shared how the US State Department is now charging thousands of dollars to renounce your US citizenship.
Now, the government is taking the steps it promised to make it harder for businesses to leave by using the so-called corporate inversions.
Ron Paul warned about this kind of thing in the previous Republican presidential debates. In an ironic twist, the same people who crow about the success of the United States due to immigration are the same ones in favor of building fences to keep people out.
Only, now the US government is essentially putting up fences to keep money and business from leaving.
The Obama Administration is laying out the first set of new rules to essentially force businesses started in the United States to continue paying tribute to the USSA long after they choose to leave.
In what is called “these first, targeted steps make substantial progress in constraining the creative techniques used to avoid U.S. taxes”, the government will change the basis on which companies leaving the United States are valued by essentially forbidding them to pay out dividends before their departure, and by disallowing their new foreign entities from counting non-cash assets on their balance sheets.
The set of rules being used is rather complex, but the bottom line is simple: the US government is building a Berlin Wall for business.
Secretary of the Treasury Jacob Lew has been shooting his mouth off about these new regulations for some time now, saying it is “unpatriotic” and even immoral for US companies to decide that another country’s lower tax rates offer a more favorable climate to do business.
The Bumbler, along with the Usual Suspects in Congress such as Chuck Schumer, have echoed those comments.
Legendary Chinese general Sun Tzu said that you know your opponent is desperate when they deflect from the real issue and play the emotional card. In an increasingly poor United States, the largely uneducated citizenry has decided that big business should pay the price for a new wave of free stuff for the middle class.
And that is exactly what politicians in bankrupt countries pander to. The Obama Administration has not one good argument for why businesses should stay in the United States. They never have and they never will.
Instead, politicians desperate to cling on to power in the face of a permanently declining economy are making “patriotism” the issue in their efforts to literally stop businesses from leaving.
It is deflection and desperation at its finest.
Any healthy, stable, and sane country would realize that it can’t win them all. It would focus in opening itself up for more business while respecting the business it already has.
While I would prefer to see tax rates of zero, successful businesses are by nature rather pragmatic and most would gladly choose to stay in the United States over relocating to a tax haven if corporate tax rates were lower.
That is the exact opposite of what the United States is doing. Somehow, politicians think they are still living in the post-World War II era where the dollar dominated and the only destination any immigrant wanted to go to was “America”.
Today, people and companies are rushing for the exits. And rather than pull a “it’s not you, it’s me”, the government is reacting like a caged tiger and saying “no, you can’t leave”.
Now, the US government can’t literally stop a business from going overseas. Any big business today has assets all over the globe and no one government can call all the shots.
But what the US government is doing is demanding its pound of flesh in a very vindictive way. The Bumbler and his minions could care less about jobs for the middle class or a strong economy. Remember, all they want is power.
Getting money into the Treasury – or, as Peter Schiff says, the debt since the United States has no treasure – is the top priority of politicians who can’t stay in power without bailing water out of their sinking ship.
It’s an easy sell to tell constituents that the “greedy capitalists” are picking up and leaving town. Few easier ways to extort money from business exist.
Then again, it’s really no different than blaming your ex-girlfriend for all of the problems that led to your breaking up when it was you who slept with her sister and beat her up.
The United States government has become the world’s worst boyfriend, assuming no responsibility to keeping taxes in line with the rest of the world or treating businesses with any kind of respect. Each year, the federal government churns out tomes of new regulations and costs businesses billions of dollars in compliance costs, just because it can.
To them, your business is the result of their benevolence. If you were born on their soil, your entire life’s work product is their doing, and they should get whatever cut they choose.
While new tax havens are popping up around the world, and even bankrupt nations like Japan are lowering their corporate tax rates, the United States is seeking to raise taxes and enact more punitive measures on business.
To then look up and say “you can’t leave” is mind-boggling. But it’s now happening. The world’s worst boyfriend is now blocking the door with his fists.
Only desperate governments have to block the exits and keep people in. Again, think Berlin Wall. Just as healthy people tell those who don’t want to be with them to leave, healthy, stable countries have an easy-going relationship with businesses.
When your country makes it nearly impossible to move your business to greener pastures, you know something is wrong.
If your business depends solely on the United States or some other dying western economy, you have to reconsider how you will diversify beyond your borders. The growing exodus of companies is a sign that business conditions in The Land of the Free are only getting worse.
What’s more, companies doing business from places like Switzerland and Canada, where corporate tax rates are lower, will be able to undercut US businesses on price, making US businesses less competitive. The growing wave of corporate inversions will also make life harder for small business that may have fewer options short of physically packing up and leaving.
No matter how things play out, the end result is bad. Whether the government’s next move is engaging in a trade war to keep cheaper products sold by inverted companies out, or simply increasing taxes more on the businesses that don’t leave, we know from history that building walls is never a good thing.
Even if you’re a common citizen with no business interest, you have to ask yourself what steps a desperate, emotional government will take next in the name of “patriotism”.
Because Sun Tzu also said, “there is no instance of a nation benefitting from prolonged warfare.” And the war on capital in the United States is just heating up.