How to stop the inversion perversion

Restricting companies from moving abroad is no substitute for corporate-tax reform

 

Jul 26th 2014 | From the print edition

ECONOMIC refugees have traditionally lined up to get into America. Lately, they have been lining up to leave. In the past few months, half a dozen biggish companies have announced plans to merge with foreign partners and in the process move their corporate homes abroad. The motive is simple: corporate taxes are lower in Ireland, Britain and, for that matter, almost everywhere else than they are in America.

In Washington, DC, policymakers have reacted with indignation. Jack Lew, the treasury secretary, has questioned the companies’ patriotism and called on Congress to outlaw such transactions. His fellow Democrats are eager to oblige, and some Republicans are willing to listen.

The proposals are misguided. Tightening the rules on corporate “inversions”, as these moves are called, does nothing to deal with the reason why so many firms want to leave: America has the rich world’s most dysfunctional corporate-tax system. It needs fundamental reform, not new complications.

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Fixing the tax sieve

Two lawmakers are determined to overhaul America’s woeful tax code. Will their parties let them?

Jul 13th 2013 | WASHINGTON, DC |From the print edition
[Greg Ip] WHEN politicians show up at a manufacturer’s research centre and a family bakery, they are usually chasing votes. Max Baucus and Dave Camp were on a different sort of campaign when they hit the Minneapolis area on July 8th. Mr Baucus, a Democratic senator, and Mr Camp, a Republican congressman, are touring the nation to drum up support for tax reform.

Policy wonks have long dreamed of simplifying America’s tax code. Hopes soared after last year’s election, when Barack Obama and John Boehner, the Republican Speaker of the House of Representatives, both suggested that tax reform could be part of a grand bargain that raised tax revenue, curbed spending and cut the deficit. Alas, negotiations between the two men foundered.
However, Mr Baucus and Mr Camp, who head the tax-writing committees in their respective chambers, have not given up. For both, it is a crusade. Mr Baucus will retire at the end of 2014; tax reform would cap his long career. He has held 30 hearings in three years and published ten papers detailing options for reform.

Mr Camp’s clock is ticking, too: his term as chairman of the Ways and Means Committee ends next year. Mr Camp took up the cause in 2010. Since then he has published three draft proposals on tax reform, held 20 hearings and formed 11 working groups. The two men meet weekly, have a joint Twitter feed and now travel together.

Both want to address the tax code’s two big problems.

E-commerce: Click and pay

Both parties are getting keener to tax sales on the internet

Apr 6th 2013 | WASHINGTON, DC |From the print edition
[Greg Ip]THE past few years have brought little relief for pinched state finances. But on March 22nd 75 senators, including majorities of both parties, approved an amendment to a proposed federal budget which, if enacted, would allow states to collect taxes on sales by internet retailers based in other states.

It makes no economic sense to tax sales in shops and over the internet differently. The prohibition is constitutional. In 1992 the Supreme Court ruled that states could not force out-of-state retailers to collect tax on sales to residents unless Congress, which oversees interstate commerce, said so. Only retailers with a physical presence—a “nexus”, in the legal jargon—in the state could be taxed.

The economy: Deficit-reduction disorder

Austerity and economic recovery are bringing down the deficit, but the long-term problem has not been fixed

Feb 9th 2013 | WASHINGTON, DC |From the print edition

[Greg Ip] WITH the financial crisis over and the recovery gaining momentum, one big piece of unfinished economic business hangs over Barack Obama’s second term: arresting the relentless rise in America’s already sky-high debt. He is turning to the task with what seems an improbable claim: that the job is closer to completion than people appreciate.

There is, however, some truth to it. On February 5th the Congressional Budget Office (CBO) forecast that for the fiscal year ending on September 30th the deficit will clock in at $845 billion, or 5.3% of GDP, the lowest figure since 2008 and down by nearly half from its peak of 10.1% in 2009, Mr Obama’s first year in office.

To be sure, that projection assumes that Mr Obama and Congress do not override planned spending cuts and tax rises, most importantly the “sequester”. The sequester mandates $1.1 trillion of additional spending cuts over the next ten years, including $85 billion-worth this year that are due to begin on March 1st after being put off for two months. Even if those measures are overridden, the CBO still predicts that the deficit will fall to 5.5% this year and 3.7% of GDP by 2015. Thereafter, though, it will start to rise again.

The drop has been caused both by the improving economy, which boosts revenues and reduces the cost of safety-net programmes, and the expiry of the few remaining stimulus measures. It has also occurred, as Mr Obama now often reminds listeners, because in spite of their acrimonious relations he and Congress struck two deals in 2011 that cut spending and one at the start of this year that raised taxes. Cumulatively, these three deals have already cut a projected $2.4 trillion from deficits over the coming decade, or a little over 1% of GDP, according to the Committee for a Responsible Federal Budget (CRFB), a watchdog group (see table).

Cliff talks: Relief in sight

President and speaker draw near to a deficit deal

Dec 22nd 2012 | WASHINGTON, DC | from the print edition

[By Greg Ip] THE housing market has turned, Europe’s crisis is apparently in remission and the Federal Reserve has pressed its monetary accelerator to the floor. Yet as 2012 draws to a close, America’s economy is still growing at an annualised rate of only around 1%. That figure has been depressed by fears of the self-inflicted “fiscal cliff”: a package of tax increases and spending cuts, worth 5% of GDP in a full year, that is set to kick in on January 2nd.

That constraint may also be finally lifting.

Five myths about tax reform

By Greg Ip, Published: December 14

As the nation’s leaders seek to keep the country from heading over the “fiscal cliff” — a set of mammoth year-end tax increases and spending cuts — nothing has proved more contentious than taxes. President Obama wants the rich to pay more; Republicans want to keep tax rates where they are. One popular proposal is to eliminate the tax code’s hundreds of loopholes and use the money to reduce the deficit without raising rates. But while tax reform is wonderful in theory, in practice it might not be as politically palatable — or economically effective — as advertised.

1. Tax reform has bipartisan support.

The night he was reelected, President Obama said “reforming our tax code” was among his second-term priorities. A few days later, House Speaker John Boehner said tax reform could help solve the national debt.

The Senate tax bill: A dreadful third option

Dec 14th 2012, 19:54 by G.I. | WASHINGTON, D.C.

Negotiations over the fiscal cliff appear to have stalled. A meeting last night between President Barack Obama and John Boehner, the Republican speaker of the House of Representatives, produced no apparent narrowing in their positions.Since negotiations began, very little progress has been made: Mr Obama initially asked for $1.6 trillion in tax increases over the coming decade, later lowered to $1.4 trillion, and offered $400 billion in spending cuts.

Mr Boehner has, in return, offered $800 billion in higher revenue by eliminating tax expenditures (i.e., no increase in rates), and asking for $600 billion in entitlement cuts. Both sides say they are waiting for the other to specify details of their demands, in particular on spending. Mr Boehner is apparently headed home to his Ohio district for the weekend, a sign that no progress is being made.

Until this point there have been two likely outcomes: no deal at all and the country going over the cliff, or a grand bargain. But there is third option.

How to solve the fiscal cliff: The Obamney tax plan

Nov 8th 2012, 23:33 by G.I. | WASHINGTON, D.C.

This post has been updated.

PRESIDENTS choose their words carefully. So when Barack Obama talked of  “tax reform” but not “tax rates” in his acceptance speech early Wednesday, he was presumably sending a signal. And it was similarly significant that later that day John Boehner repeatedly stated his opposition to higher tax “rates” rather than tax revenue.

Within those two statements lies the nucleus of a deal: raising tax revenue through some means other than higher tax rates.

Taxes, spending and the deficit: Trillion-dollar questions

With the deficit at over $1 trillion for a fourth year running, taxes and government spending are critical to the campaign

Oct 6th 2012 | from the print edition

[Greg Ip] BARACK OBAMA won in 2008 largely because of the economy. He may lose this year for the same reason. The economy now surpasses all other issues in voters’ minds. Close behind are health care, taxes and the deficit. These issues are all intertwined. The candidates’ competing proposals on taxes and spending are central to how they plan to revive economic growth.

Both have laid out ambitious markers for the next four years. Mr Obama promises to create 1m more manufacturing jobs. Mr Romney counters with predictions of 12m new jobs in total. Neither figure is out of line when the economy has as much ground to make up as it has now. Over the coming decade, Mr Obama has projected average annual growth of 3.2%; private economists think growth of just under 3% is more likely. A team of Mr Romney’s advisers think his plan will spur the economy to grow by 3.5-4% a year.

Tax reform: The devil’s in the details (and the politics)

Feb 22nd 2012, 21:46 by G.I. | WASHINGTON

[Greg Ip] LIKE the weather, American politicians talk a lot about tax reform but do nothing about it. Which is a pity, because while Americans have been talking, other countries have been doing; since the late 1980s, top corporate tax rates around the world have dropped to a point that America’s, once below the international average, is now well above.

As this has happened, American-based multinational companies have shifted more activity offshore; their foreign employment steadily rose over the last decade as domestic employment fell. This is mostly because of the appeal of cheap labour and growing markets in the emerging world, but business groups and many economists think America’s tax rate is also to blame. Liberal analysts blame the tax code for a different reason: it allows multinationals to stash income in foreign havens and indefinitely defer taxes on it, encouraging the outsourcing of jobs.

Barack Obama claims to be ready to do something about it.