Dear Doctor Obama: Cure the disease instead of focusing on symptoms

When one focuses attention solely on the consequences of a problem rather than addressing the problem itself, it’s inevitable that the problem will persist and those consequences and new ones will reappear.
 
The sad state of how our elected leaders are choosing to address our economic problems offer a textbook illustration.
 
{mosads}Over the past year, several American corporations have merged with international companies – typically based in Europe – to escape our suffocating tax atmosphere and the developed world’s highest corporate tax rate. That survival tactic, often called inversion, has been adopted by corporations with household names, including Burger King, Johnson Controls, and Medtronic.
 
In similar fashion, pharmaceutical manufacturer Pfizer announced plans last November to merge with Ireland’s Allergan and locate their headquarters in Ireland because of its much more sustainable tax rate. Last week, however, the Treasury Department took draconian and legally dubious steps to target that survival strategy. The very next day, President Obama intensified the rhetorical level by calling on Congress to pass legislation making America’s business climate even more hostile.
 
Faced that new headwind, Pfizer decided to scrap its merger plan. What many foolishly welcomed as good news in fact only invites similar situations to recur, returning to our cause versus symptom illustration above. Namely, the Obama Administration has only succeeded in momentarily suppressing a byproduct of the underlying malady:  America’s taxes are too high, our code is woefully outdated and our economy continues to suffer as a result. The real problem remains.
 
The simple reality is that our corporate tax rate of 35% – the highest among OECD nations – jeopardizes every domestic corporation’s very survival in an increasingly competitive global economy. Moreover, because public corporations remain under a legal fiduciary duty to their shareholders to run the most efficient operation possible, America’s unsustainably high tax rate leaves them with little choice but to explore inversion opportunities.
 
Tragically, even President Obama understands that reality. On several occasions, he has called for comprehensive tax reform that included lowering the corporate tax rate to a more globally competitive level. It defies logic and experience that the president called for lower tax rates out of some sentimental affection toward American corporations. Rather, he clearly understands that cutting America’s corporate tax rate allows domestic businesses a better chance of growing and competing on the international stage.
 
On a brighter note, however, it’s encouraging to see that President Obama is at least aware of the underlying problem and the need for reforming America’s tax system. Our code is completely antiquated and creates numerous pitfalls for companies and taxpayers alike.
 
But rather than actually fix it, taking rhetorical potshots at the private sector only perpetuates the problem.
 
To remedy the situation, Congress must take concrete steps towards comprehensive tax reform now.  Members within both parties should ignore shortsighted calls for one-off solutions or red herring issues like inversions. By placing every facet of our decades-old tax system on the proverbial reform table, and convincing every member of Congress that he or she has skin in the game, a holistic overhaul becomes more possible.  There is still enough time in 2016 to achieve a deal.
 
Accordingly, corporate inversions that have received disproportionate attention this week remain merely a visible symptom of our fundamentally dysfunctional tax system. Like any other problem, the best way to fix it is to deal with the root cause. Attacking only the symptoms might provide temporary pleasure to some people, but it changes nothing.
 
President Obama and Congress therefore must enact comprehensive tax reform before new and deeper damage to America’s economy occurs.

Lee is Senior Vice President of Legal and Public Affairs at the Center for Individual Freedom, an Alexandria, Virginia-based nonprofit organization founded in 1998 to advocate the principles of free markets, limited government and international liberty.