28 July 2014
¶ What makes human people so special in America? They’re the ones who pay most of the taxes. Corporate people pay much less. Our current regulatory scheme, flourishing under right-wing nurture, favors the dispensation in many ways, most currently in the vogue for “inversion,” whereby an American company buys a foreign one but claims that it was the other way round, so that profits not generated in the US are not taxed. (I remember when, four or five years ago, Chinese firms launched a vogue for these transactions, not for tax purposes but in order to be listed on the New York Stock Exchange. Global Boulevard is a two-way street.) Paul Krugman takes a crack at inversion in his column in today’s Times.
The most important thing to understand about inversion is that it does not in any meaningful sense involve American business “moving overseas.” Consider the case of Walgreen, the giant drugstore chain that, according to multiple reports, is on the verge of making itself legally Swiss. If the plan goes through, nothing about the business will change; your local pharmacy won’t close and reopen in Zurich. It will be a purely paper transaction — but it will deprive the U.S. government of several billion dollars in revenue that you, the taxpayer, will have to make up one way or another.
Does this mean President Obama is wrong to describe companies engaging in inversion as “corporate deserters”? Not really — they’re shirking their civic duty, and it doesn’t matter whether they literally move abroad or not. But apologists for inversion, who tend to claim that high taxes are driving businesses out of America, are indeed talking nonsense. These businesses aren’t moving production or jobs overseas — and they’re still earning their profits right here in the U.S.A. All they’re doing is dodging taxes on those profits.
And Congress could crack down on this tax dodge — it’s already illegal for a company to claim that its legal domicile is someplace where it has little real business, and tightening the criteria for declaring a company non-American could block many of the inversions now taking place. So is there any reason not to stop this gratuitous loss of revenue? No.
We think that official tolerance of inversion is the strongest evidence to date that American government is depraved.