Over the last eight years, the Obama Administration has been bent on beating up on business through rafts of new regulations. The Administration’s move to prevent companies from merging with corporations based in lower-tax countries, called inversions, is just the latest anti-business hammer. More worrying, the Administration’s anti-merger rule underscores many on the left’s lack of understanding or interest in basic economics.
In a global economy, American businesses are competing with foreign companies. Saddled with a 35 percent U.S. corporate tax rate, the highest among all industrialized nations, our businesses are starting with a heavy disadvantage.
{mosads}American businesses’ competitive disadvantage is even worse when you examine the complete tax picture. When combined with state and local taxes, our businesses are taxed at 39 percent. In addition, our businesses are not just taxed once, but twice. American companies with operations overseas are required to pay taxes in the country where they made the income and then again when they bring it home to the United States. As a result, some $2.1 trillion is being held offshore, rather than being invested in our economy here at home.
Throw in the some 175,000 pages of regulations, costing the U.S. economy as much as $2 trillion every year, it’s a testament to their innovation and fortitude that American companies manage to even keep their doors open, not to mention build and sell products, provide good paying jobs, healthcare and benefits to millions of Americans. Yet for some of the President’s allies in Congress, even this is not enough.
The left has been particularly hyperbolic when discussing inversions. Instead of touting American companies’ ingenuity and commitment to American workers, Democrats on the 2016 presidential campaign trail have accused our businesses of destroying our country’s “moral fabric.”
What we have not seen from President Obama and other leaders on the left is a willingness to tackle the root of the problem – reforming our uncompetitive tax system and reigning in runaway regulations. Instead, the President’s onerous and retroactive inversion rule is a misguided attempt to address a symptom, not cure the whole illness.
In the short-term, it’s clear President Obama got exactly what he wanted – U.S.-based Pfizer and Ireland-based Allergan immediately called off their proposed $160 billion merger. In the long-term, Treasury’s overly broad rule, running some 200 pages, could have far reaching impact. Experts are already warning that this latest government overreach could have a chilling affect on foreign direct investment, further damaging our economy. House Ways and Means Committee Chairman Kevin Brady recently echoed this sentiment.
Other countries have woken up to the economic advantages of a more competitive business climate. After its decision in 2008 to lower corporate tax rates to 20 percent (by 2020, it will be 17 percent) and move to a territorial tax system, the United Kingdom experienced a 50 percent rise in the number of corporations seeking to make the U.K. their home. If the United States does not want to be left behind in the global economy, rather than continuing the “business is bad” refrain and unilaterally enacting anti-business regulations, it is critical that the President work with my former colleagues in Congress to prioritize bipartisan corporate tax reform.
Senate Finance Chairman Orrin Hatch, for instance, is working on a plan to eliminate the double taxation problem, which would significantly reduce effective corporate tax rates. Chairman Brady has been pushing for international tax reform and is now working on a blueprint for broader reform. These types of proposals will help American companies compete on a level playing field with the rest of the world.
It’s this kind of common-sense thinking that we desperately need to make America competitive in the global marketplace.
Christopher S. Kit Bond (R-MO) served in the U.S. Senate 1987-2001.