Charles Jaffe writes a financial column for MarketWatch, and I often enjoy reading them. But in a recent column, Jaffe strayed beyond dispensing financial advice and opinion. In Tax inversions can be bad for shareholders—and for America, Jaffe offered not just financial but moral perspective, and went way off base.
Initially, Jaffe noted:
Inversion [Re-incorporating a company overseas in order to reduce the tax burden on income earned abroad] deals have been in the news of late, becoming a political football. Lost amid the rhetoric and President Obama calling them “unpatriotic,” is a fundamental truth: They’re not good for long-term shareholders who hold stocks in taxable accounts.
So far, so good. But after explaining the mechanics of how inversions work and why companies do them, Jaffe said:
Functionally, an inversion is the way corporations can actually live by the old quip attributed to one of my father’s favorite entertainers, Arthur Godfrey, who said he was “proud to pay taxes in the United States; the only thing is, I could be just as proud for half the money.”
Mind you, the companies here want the full benefits of being United States citizens without paying full price for it.
That’s why, on a personal level, this grinds me; it’s not a “buy American” thing, it’s more that I’m the son of immigrants who were grateful to be taken in by this country, and I was taught that if you were going to enjoy the benefits of living here, you were supposed to be a responsible citizen.
I left these comments:
“Mind you, the companies here want the full benefits of being United States citizens without paying full price for it.”
This is a very unfair statement.
First, taxes “dodged” through inversion pertain only to profits earned outside the U.S. Inverting companies still pay “full price” on their American earnings.
Second, corporate taxes represent double taxation, with owners’ profits taxed once as a corporation and again as individual shareholders.
And this is not to mention that U.S. corporate tax rates are the most confiscatory in the world. It looks to me like American companies pay quite a bit more than “full price” for their U.S. citizenship. Shame on Washington for treating American business so shabbily.
I didn’t even mention another form of unfairness—all of the special tax provisions larding up the corporate code, which leads to different tax rates for different companies based on how much they curry favor with politicians.
It may be that, from a tax standpoint—as Jaffe also argues—tax inverting corporations are a less good personal investment. But I would say that Jaffe is engaging in some inversion of his own—specifically, moral inversion. This surprised me, because in just having explaining why companies invert, one would expect a conclusion such as, “Who can blame them?”—followed by a call to reform the tax code and lower rates so as to eliminate the incentive to invert. But no, Jaffe plays the Leftist rhetorical game of “political football” he decried, essentially agreeing with Obama that these companies are “unpatriotic,” with not a word against the politicians who devised the tax code.
Jaffe’s inverted moralizing cheapened his column, and put him squarely in bed with what George Will characterized as “the grandstanding frivolity of the political class. It legislates into existence incentives for what it considers perverse behavior, and then waxes indignant when businesses respond sensibly to the incentives.”
Toward Less-Unfair Corporate Taxes