Tuesday, August 12, 2014

Professor Steven Pressman’s Moral Inversion on “Tax Inversion”

Tax inversion”—the practice of using corporate mergers to relocate company headquarters to countries with lower corporate taxes—is being targeted by Leftist politicians and intellectuals, who want to ban the practice. Monmouth University professor of economics and finance Steven Pressman is one such Leftist. In a New Jersey Star-Ledger op-ed (We must invert tax inversion), Pressman argued that President Obama’s recently announced policies to curb tax inversions are “half-baked” because they are easy for companies “to circumvent.” Instead, Pressman proposed tax law changes of his own.

While I won’t attempt to analyze Pressman’s tax proposal, I do want to focus on Pressman’s fundamental argument against tax inversions. He writes:

The growth of this corporate tax dodge stems partly from the reduced moral stigma as more firms use it.

There are also economic factors at work. Senior executives know that when corporate taxes fall, after-tax profits rise. This will increase their pay and the value of the company stock they own. In addition, senior executives know that if they won't engage in tax inversion, new management will be brought in to exploit this loophole.

The congressional Joint Committee on Taxation estimates that the federal government will lose $2 billion this year from inversions, requiring spending cuts or government borrowing (maybe from the same corporations that just got $2 billion in tax breaks).

State governments - especially New Jersey, which has one of the highest state corporate income tax rates in the nation at 9 percent - also stand to lose significant tax revenue.

I left these comments:

Notice the moral inversion Pressman is trying to put over: When companies legally minimize their taxes, they are exploiting a “loophole” or engaging in a “tax dodge,” implying something sinister or underhanded. Then, notice that taxes not collected by governments amounts to a “loss” to governments, as if governments have first claim on the income of private citizens. The implication is that a nation’s income belongs to the government, and its productive private citizens get to keep only that which government allows by permission. This is an inversion, alright—of America’s Founding principles.

These companies’ officers are acting morally. They are responding rationally and self-interestedly to the most confiscatory corporate taxes in the world, compounded by the fact that they are taxed on income not even earned in the United States. Corporate taxes are unjust in other ways: double taxation on corporation owners and shareholders, and the crony socialism of all of the “special exemptions and exclusions, credits, deductions, deferrals, and preferential tax rates” that lard up the code.

The question should be: Why are American businesses being chased abroad? Is this patriotic government policy? Is this any way for a government to treat its own citizens? Corporate taxes should be repealed, but that is politically impossible today. The next best thing: sharply lower and flatten corporate tax rates while getting rid of all of the special corporate tax structures that politicians enact to curry favor with special interests. As to that “lost tax revenue,” governments should drastically curtail spending, most of which is immoral anyway.

We are not subjects of an imperial government. Income belongs first and foremost to the productive private citizens who earned it. Money not collected in taxes is not a loss for government. Money taxed is a loss for productive citizens. Kudos to these companies for legalizing minimizing their taxes, thus keeping more of what they earn. They are a moral example for every productive, self-responsible American taxpayer.

Related Reading:

Double-Taxation Means Double Injustice for Romney—Ari Armstrong

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