Trump’s Trade War Begins: Disaster to follow

My Facebook comments:

Trump has declared world trade war, disrupting business plans, abrigating contracts, upending consumer budgets, rendering $billions of productive investment useless, hammering Americans’ retirement portfolios, and killing jobs. It’s much worse than expected, which was already bad. For the first time, an American Administration is deliberately trying to engineer a global recession—or worse. And it’s based on discredited poverty-inducing 17th Century economics. It’s pre-Adam Smith. It’s primitive. And it’s also based on unimaginable paranoia. What does it even mean when Trump says “other countries have been ripping us off” and other such nonsense? Countries don’t trade. Private individuals do. When a foreign company exports its product to the U.S. to offer for sale, and an American decides to buy it, both sides win. Trade is WIN-WIN. Who's getting “ripped off?” Nobody. 

Economically, Trump’s collectivist premise that this will “make America wealthy again” really means make the government wealthier. The money raised by the tariffs—which will be much less than Trump dreams—will not enrich the average American. It will be sucked out of American consumers to enrich the government. Somebody’s getting ripped off, alright—American consumers, American businesses that depend on global trade, and foreign companies that supply the goods that enrich Americans’ lives. Trump cares about America, in the same sense as a big government Progressive—but he doesn’t care about Americans.

Trump’s trade war is not only economically destructive. It is immoral. It violates the inalienable individual rights of Americans to freely trade with other people. Economic freedom is fundamental to Americanism. Trump is trampling all over the American Dream.

Too many Americans have been flipping out over a few Federal workers losing their jobs and some spending being cut. But this is penny-ante stuff—and in principle positive. The real danger is in Trump’s trade war. I hope Congressional Republicans get a backbone, join with Democrats—as 4 rational Republicans just did on Canada tariffs—and outlaw Trump’s whole tariff scheme, and curb the presidential power to impose tariffs willy-nilly by executive order—a power no president should have. No, it’s not the end of the world—not yet. Perhaps the hope that this is all a negotiating ploy, and things will ultimately work out, is still alive. But we’re in dangerous territory. Make no mistake. Trump has led our country into taking the first step down a road that ends in World War III. Congress must stop Trump on this issue. That would really be Putting AMERICANS First.

At this posting, the stock market is experiencing a massive coronary. 

But there is one potential silver lining developing. Trump’s unconstitutional power grab may be jolting Congress into growing a spine. The Washington Post reported . . . 

A bipartisan bill that would give Congress final approval on tariffs imposed by a president was introduced Thursday by Sens. Chuck Grassley (R-Iowa) and Maria Cantwell (D-Washington). The bill seems to have little chance of passage but underscores the unease among some Republicans with Trump’s tariffs plan, which sent shock waves through financial markets and rattled business owners around the world on Thursday.

I’m not holding my breath. Maybe enough Republicans will join all Democrats in stripping Trump, and the presidency, of it usurped power to impose tariff taxes, which Constitutionally belongs to Congress. Unfortunately, too many Republicans are blind Trump backers, Democrats have their own protectionist problems. But “I’ll keep my fingers crossed.”

Related Reading:

Trump just imposed the largest tax hike since 1942 without congressional approval

Trump’s tariffs are a tax by another name, and the power to levy taxes lies with Congress.

If Trump were trying to implement an income tax hike of similar magnitude by executive order, it would be plainly unconstitutional. Everyone knows that only Congress can set tax rates. What’s different about tariffs? On its face, nothing. Article I, Section 8 of the Constitution states: “The Congress shall have Power To lay and collect Taxes, Duties, Imposts and Excises.”

The McKinley Tariff that Trump has said he admires was not an executive order signed by President William McKinley; it was legislation sponsored by McKinley when he was chairman of the House Ways and Means Committee. So, too, the 1930 Smoot-Hawley Tariff Act — which did much to worsen the Great Depression — was passed by Congress. It was not an executive order from President Herbert Hoover.

The problem is that, since the 1930s, Congress has delegated considerable authority to the president to set tariff rates. But, as in so many other areas, Trump is stretching executive authority beyond the breaking point.

The United States has done much better during the past 50 years than other industrialized economies: U.S. GDP per capita is 2.4 times larger than Japan’s and 1½ times larger than Germany’s. In October, just before Trump’s election, the Economist proclaimed the U.S. economy “The envy of the world.” How is this an emergency?

“This is a shocking abuse of the president’s authority to declare national emergencies,” she told me. “I don’t think that will stand up to a court challenge.” It is imperative that Congress take back the power to set tariff rates. Only elected legislators are allowed to raise taxes, and only elected legislators should be allowed to raise tariffs — which are simply taxes under another name.

Phony Liberation From a Phony War

Hillary’s Cave-in to the Left on Free Trade

NAFTA, Whatever its Flaws, Was a Good Thing

‘Buy American’ is UN-American—Harry Binswanger

The real reason Trump is destroying the economy: Trump is imposing ruinous tariffs because American democracy is no longer strong enough to stop him. [Mostly spot on. But I have to take issue with his reference to America as a Democracy. This reference confuses the issue, and leads to unnecessary contradictions. America is a Constitutional Republic. But the author’s basic argument is correct; Trump is violating the Constitutional checks and balances by imposing taxes without Congress, and is abusing emergency powers—albeit by using powers that he inherited.]

Why is Trump rewriting US economic history? Anyone?

QUORA: ‘How did Reaganomics get the country back on track?’

 QUORA: ‘How did Reaganomics get the country back on track?’

I posted this answer:

It’s a bit simplistic to say Reaganomics got the country back on track. It’s largely true, but there's more to the story. Reaganomics was part of a larger trend toward freer markets and globalization of trade. Reagan’s policies can’t get all of the credit. But they deserve a lion’s share of the credit, because he accelerated the deregulation trend of the Carter Administration and his radical restructuring of income tax rates—cutting top rates from 70% to 39% and ultimately to 28%—refocused the economic incentives from stagnation to growth.* 

Reagan’s policies corresponded to an amazing resurgence in American economic power, which in turn corresponded to dramatic global economic improvements. Reagan would avoid taking credit, instead placing credit with “We the People''—the “men and women who raise our food, patrol our streets, man our mines and factories, teach our children, keep our homes, and heal us when we're sick -- professionals, industrialists, shopkeepers, clerks, cabbies, and truckdrivers.” The result was a predictable outcome of freer markets—the economy took off, with a job and innovation-filled expansion that many did not expect, except of course Reagan himself. Reagan understood that people working and trading for personal benefit is the fountainhead of economic prosperity, and that more freedom and minimal government obstructionism was all they needed.

Let’s examine the record.

As the economic expansion took hold, after the 1980 - 82 “double dip recession”—the third and fourth in 14 years— GDP growth surged 8% growth out of the box, and averaged 4% from 1983 through the end of the century (compare that to today’s “new normal” of 2% growth). And that powerful expansion was accompanied by a phenomenon that was thought impossible by the prevailing 1970s logic of Phillips Curve economics: The strong expansion was accompanied simultaneously by falling inflation (12.5% to 3,4%), falling interest rates (19% to 8%), and falling unemployment (10.8% to 3.9%). 

Thanks to Britain’s Margaret Thatcher and other world leaders, such as Red China’s Deng Xiaoping, the successor to madman Mao Zedong, free market-oriented policies spread around the world, igniting a surging global trend of prosperity. Global extreme poverty plummeted from more than 40% in 1980 to less than 10% today. At the same time, the share of the world population living middle class (or higher) lives has passed 50%. How much Reaganonmomics inspired the global free market trend, as opposed to following it, is a matter of debate. But either way, Reaganomics played a significant role in advancing it, not least of which by giving voice to free markets and individualism.

All of this astounding progress now faces multiple threats, especially the growing attacks on global free trade, the resurgence of central planning ideologies, and the Environmentalists' war on reliable energy, especially fossil fuels. But as to the question, How did Reaganomics get this country back on track? Simple. He recognized that “In this present [1970s] crisis, government is not the solution to our problem; government is the problem,” and pursued policies to reduce government interference and thus give private individuals more freedom and incentive to work, innovate, take risks, and trade for their own personal betterment.

* [I emphasize rate, rather than tax, cuts. Between 1983, when Reagan’s first round of tax rate cuts were fully implemented, and 1989, Reagan’s last year in office, individual federal income tax revenues rose 55% as the economy soared, rising every year in that period. A tax policy that leads to strong increases in federal income tax revenues can hardly be called a tax cut.] 

Related Reading:

There's a Hole in the Middle of Doughnut Economics by Steven Horwitz

"Trickle-Down Economics": Anti-Capitalists' Insulting Portrayal of the "Common Man"

Global Poverty Decline Denialism: An anti-market ideologue tortures the data at The Guardian. By Ronald Bailey for Reason

The Growth of the World’s Middle Class May Be the Greatest Story of Our Age

Did the New York Times Just Vindicate Reaganomics?

We now have a Biden Doctrine. It makes me nervous.

EXCERPTS:

First, it is a fundamentally pessimistic view of America’s recent history. Sullivan recalls the glory days of American economic power after 1945, but then notes that in “the last few decades” that strength has waned. He talks about the hollowing-out of the country’s industrial base, the export of American jobs and the atrophying of industries. We “stopped really focusing on building,” Sullivan said, as he summarized the subsidies, tariffs, bans and investments that are at the heart of Biden’s new approach.

Ironically, only a couple of weeks before Sullivan made his speech, the Economist had a cover story on “America’s astonishing economic record.” It begins with 1990 — often used as the start of the rot in the narrative of decline — and points out that despite the rise of huge new economies such as China and India, the United States’ share of global gross domestic product has stayed roughly the same since then: around 25 percent. During that same period, America’s share of the Group of Seven’s economic output increased substantially, from 40 percent to 58 percent. Today, eight of the world’s 10 biggest companies are American. In 1989, only four were American (and six were Japanese). As for building, during these decades, the United States created and built the information economy, surely one of the greatest transformations and advances in human history.

In 1990, the great fear in the United States was of being overtaken by Japan, then seen as the predatory economic power that was eating our lunch. But, as the Economist notes in the same edition, in 1990, the income per person in the United States was just 17 percent higher than in Japan; today it is a staggering 54 percent higher. Look at demographics or energy or leading technology companies, and everywhere you see the United States in a dominant position. Perhaps we got something right.

It's Time to Bury the "Trickle-Down" Myth

Capitalism: The Unknown Ideal—Ayn Rand

Three Cheers for "Trickle-Down!"

Related Listening:

Carter Trumps Reagan on Deregulation [CATO, 14 minutes]

Do Sanders’ and Trump’s Electoral Success Signal a ‘Middle Class Revolt?’

In a recent New Jersey Star-Ledger article, Mark Di Ionno argued that the electoral success of Donald Trump and Bernie Sanders is a sign of middle class revolt. He writes:

Bernie Sanders and Donald Trump voters are like first cousins in an estranged family. They say they don't like each other, but they share the same DNA.

Anger. Frustration. The sense that the American dream, or the America they dreamed of, is slipping away.

The seeds were flung with the scattered formation of the tea party in 2009, followed by Occupy Wall Street. Different political views, yes, but same viewpoint:That America was no longer a place by the people and for the people. That it favors politicians and their corporate/special interests financers, and chews up and spits out the little guy. [sic]

When campaign workers at both Sanders and Trump headquarters described their demographic yesterday, they sounded identical.

"We have teachers, police, firemen, union guys. They all say the middle class is falling apart."[sic]

"Trump and Bernie supporters come from the same line of frustration," said [NJ state Assemblyman John Wisniewski. "They see bankers engaging in reckless behavior and destroying the economy, and never punished. They see a culture of political corruption."

There may be some truth to this line of analysis. But the question is, is this really a middle class revolt? What, exactly is the middle class? What are its roots? One of the biggest beefs, referenced several times in the article, is the issue of “good-paying manufacturing jobs going overseas.” What do these Sanders/Trump supporters demand? That it be stopped, freezing the status quo? Did stagnation build the middle class? Is ‘middle class’ synonymous with an entitlement mentality and government favoritism?

I left these comments:

How did we get to the point where the American Dream is threatened and diminished by a system that “favors politicians and their corporate/special interests financers, and chews up and spits out the little guy?” [sic]. In short, the mixed economy, regulatory welfare state—now at its vastest, most intrusive size ever.

Politics is the realm of government force. Economics is the realm of voluntary cooperation and exchange. Politics and economics should not mix, for the same reasons politics and religion should not mix. When they do, what do you get? In religion, you lose religious freedom and the opportunity to live by your own conscience, religious or non-religious. Likewise, when government force into the economy grows, voluntarism diminishes, along with freedom and its corollary—economic opportunity. And then you get a politically corrupted economy whereby the government becomes the tool of politicians and special interests—not just financiers—competing to forcibly impose their agendas by law; i.e., to “rig the system” in their favor at others’ expense. That’s how we got the 2008-09 financial crisis and Great Recession; the result of politicians, allying with a handful of mortgage lenders and eventually coercing the rest, employing the vast accumulated regulatory apparatus of the state to push “affordable housing” policies on the economy in the 1990s and 2000s, leading to a Perfect Storm of government intervention that triggered a monumental housing bubble, bust, and ultimately economic collapse.

The favoritism increases in proportion to government’s power over the people’s economic affairs. Make no mistake. The favoritism starts with government controls, not “corporate/special interests financiers.” The dollar is no match for a bullet. Without the government’s corrupting regulatory and tax powers, there could be no “rigging” of the economy by any private economic faction, be it the environmental, labor, business, or whatever lobby, and no incentive to do so. A private company can set its own $15 minimum wage, but it cannot outlaw all sub-$15 jobs by imposing it across the entire economy. Only government can do that. Likewise, a private financier can bail out any incompetent bank or auto company with his own money if he chooses, but he cannot force taxpayers to help fund it. Only government can do that. The same goes for all economic controls and favors.

Yet what do these alleged middle class rebels gravitate towards? Do they demand more economic freedom and less government control, the only kinds of reforms that can protect “the little guy?” No. They gravitate toward two authoritarians whose idea of “help” consists of continuing to expand the very regulatory powers that incentivize, enable, and feed the growth of cronyism and political corruption of the economy—one a self-described “democratic socialist” who would increase “public control of the means of production”—more government control over the economy—by stripping the individuals that comprise “the public” of the economic freedom to produce and trade for his own benefit; the other a nationalistic pragmatist who would subordinate the individual’s economic control to his shifting whims and deal-making skills.

The true middle class is marked by enlightened self-interest, self-reliance, respect for achievement, respect for the rights of others, and a self-sufficient attitude that doesn’t seek handouts or favors, but instead exploits the freedom to work and rise by voluntary trade with others. A true middle classer does not expect the entire economy to stagnate for his benefit. A true middle classer, for example, would recognize that a company has as much right to fire a worker as a worker has to quit a job; that a company has a much right to hire the workers of its choice as a job-seeker has to accept the best job offer he can find; that just as the worker is not a slave of a company, the company’s owners are not slaves of their workers; that each has the moral right to pursue their own economic self-interest, whether their interests align or diverge—and that any attempt to politically infringe another’s economic freedom for short-term gain eventually hurts us all.

I sympathize with the “Anger [and] Frustration” of the revolt, such as it is. I sympathize with “The sense that the American dream, or the America they dreamed of, is slipping away.” But not with the revolt’s misidentification of the causes or solutions. There are government policies that drive investment and jobs outside our borders for other than sound economic reasons. But the policies—e.g. the corporate income tax—not the global economy, is the problem. Xenophobia on trade is not the solution.

These pseudo-middle class rebels more resemble the clueless inhabitants of Animal Farm than the enlightened middle class rebellion we really need. If Trump and Sanders are the extent of the rebellion the middle class can muster, the American Dream—which is really nothing more than the political and economic freedom to pursue your dreams without any coercive human impediments—is in deeper trouble than anyone imagined.

Related Reading:

Sanders is Cashing In on the Sanders Economy

Bernie Sanders the Demagogue Enters the Democratic Presidential Race

Trump’s Antitrust, Tax Attack on Bezos Still Not Enough Reason to ‘Dump Trump’

Hillary’s Cave-in to the Left on Free Trade

The New Jersey Star-Ledger last fall chastised Hillary Clinton for her failure to take a firm position on global trade, in particular her stance on President Obama’s Pacific trade pact, which suffered a defeat at the hands of the Senate on so-called fast track authority, mainly due to Democrat opposition. (Clinton has since come out against the pact.)

To its credit, the Star-Ledger is pro-free trade. But Clinton, whose husband pushed through the North American Free Trade Agreement (NAFTA) in the 1990s, may be hesitant to take a stand in the face of primary opposition from the protectionist Bernie Sanders. The Star-Ledger asks, “Hillary Clinton, where are you hiding?” In Hillary's dodge on trade dilemma, the Star-Ledger explains the mutual benefits of free trade to trading countries, but also stated that “the concerns raised by reluctant Democrats are valid.” It also noted what it called “a dark side to globalization, too. American manufacturers have moved millions of jobs abroad since trade began to boom in the 1970s.”

The Star-Ledger also supports fast-track authority, which has been granted numerous times in the past to presidents of both parties, for Obama. Fast track authority “bars Congressional amendments to negotiated deals, [and] force[s] an up or down vote. That's a practical necessity. If Congress fiddles with the terms, other countries would as well, and negotiations would never end.”

I left these comments:

I agree that reducing political impediments to international trade is a major economic imperative. I would also argue that it’s a moral imperative. Americans have as much right to trade with people across national boundaries as New Jerseyans have to trade with Minnesotans, or Newarkers have to trade with Camdenites. Trade is a win-win, wherever it takes place.

But I take issue that the movement of manufacturing jobs abroad “is a dark side to globalization.” This narrow view ignores context. As Bastiat observed, a good economist takes into account not only what is immediately visible, but also secondary effects that are not seen but are just as real.

For example, the reduced cost of imports lowers the cost of living, thus raising the standard of living of Americans, particularly lower income Americans. The extra money Americans have to spend due to savings from the lower prices of the imports then fuels growth in other domestic industries, offsetting job losses with more hefty job gains elsewhere. The added spending power of Americans helped fuel the technology revolution. Furthermore, it’s not a one-way street. The  “offshoring” trend of U.S. jobs is beginning to reverse, thanks to the American-led Second Industrial Revolution and the trade-induced growth of prosperity abroad. Last year [2014], more jobs were brought into the U.S. than left. Obama’s Pacific free trade pact will accelerate that trend. Market forces are dynamic. The overall impact of free global trade is people around the world getting better together.

On the big picture, though, I agree with the editors here. Hillary is the best 2016 candidate the Democrats have [or, more accurately, the least bad]. It’s a shame she’s kowtowing to protectionist demagogues like Elizabeth Warren and Pat Buchanan. Protectionism violates Americans’ individual rights to spend and invest their money as they see fit, and makes us generally poorer. Hillary needs to step up and tell us where she stands on the issue of global trade.

Free trade is often an easy scapegoat for politicians who ignore the responsibility of bad domestic political policies for America’s economic problems. E.G.:

• The housing boom, bust, and related financial crisis and Great Recession and the consequent huge misallocation of human and capital resources into housing-related industries at the expense of other sectors—the primary cause of which was the Fed’s easy money policies and the Clinton/Bush “affordable housing” crusade.
• The huge expansion of the regulatory welfare state in the past 15 years.
• The highest-in-the-world corporate income tax, coupled with the fact that the U.S. is the only major industrial country to tax overseas earnings of domestic corporations. This is keeping U.S. capital locked up abroad, rather than reinvested in America.

All of this also coincides with reduced wage growth. Blaming global trade is short-sighted and narrow-minded.

Related reading:

NAFTA, Whatever its Flaws, Was a Good Thing

‘Buy American’ is UN-American—Harry Binswanger

New Jersey's Stupid, Immoral 'Buy America' Bill

Pfizer's Tax Inversion is Moral

Corporate inversion, also known as “tax inversion,” is the practice of “Re-incorporating a company overseas in order to reduce the tax burden on income earned abroad.” (for more on this, see my article “Citizens for Tax Justice” vs. Rational Patriotism in The Objective Standard.)

Tax inversion has become somewhat of a trend among large U.S.-based companies in recent years. Pfizer, the big American pharmaceutical company, is the latest and one of the most high profile companies to do so. Through a merger with Allergan, the Irish drug maker, Pfizer will re-incorporate in Dublin, thus lowering its U.S. tax rate.

To be sure, there are other non-tax reasons for Pfizer’s decision to merge. But attention, especially from the Left, has been focussed on the tax inversion. For example, The New Jersey Star-Ledger condemned Pfizer’s move in an editorial titled Pfizer’s tax-dodge is nothing but blarney. It is totally one-sided. Here are some excerpts:

There’s a pot of gold at the end of every rainbow for a shameless corporate tax evader.

If you’re looking for a concrete example of how big money influences American politics, you’ll find it right here. This abusive tax dodge could have been prevented, but bills currently in the Republican-controlled House and Senate that would put an end to it haven’t been passed because of powerful special interests.

In the meantime, Pfizer executives are actually trying to sell this as a good deal for the United States. They’re excusing their blatant tax avoidance with the tired old promise that the money saved and increased profits of its shareholders will —you guessed it — create new jobs.

Please. The reason we have corporate taxes in the first place is because companies such as Pfizer directly benefit from public spending in America. Pfizer profits from government research on drugs and patent protections. The main ingredient in its arthritis drug, Xeljanz, was discovered by a government scientist in a taxpayer-funded laboratory and given to Pfizer for further development and licensing. Now Pfizer is selling the drug for nearly $25,000 per patient per year.

Even absent deals like that, its workforce is educated in our public schools. Its employees take public roads and transportation to their jobs. These are all things that Pfizer is now not paying its fair share for. Where is the taxpayer’s return on these investments?

The only inversion evident here is a moral one; the Star-Ledger blaming the victim rather than the guilty party. And you can throw in a healthy dose of evasion, to boot.

I left these comments:

First, Pfizer is not “a shameless corporate tax evader.” It’s action is perfectly legal, which makes their action tax avoidance, not evasion. Tax avoidance is commendable. Who reading this editorial would deny using every available legal means to minimize their income tax bill?

At issue is not U.S. corporate taxes, which Pfizer will continue to pay on its U.S.-generated profits. At issue is taxes earned in foreign-generated profits. It’s interesting that the editors don’t even mention a Bloomberg article published in the Star-Ledger on 11/23/15 that observed, “The U.S. has the highest tax rate for businesses in the world, at 35 percent, and is one of the only countries to tax corporate profits wherever they are earned.”

Is this fair? Pfizer is not trying to avoid taxes. It is trying to avoid unfair taxation. That is perfectly moral and courageous. After the inversion, it will continue to pay U.S taxes at U.S. rates on its U.S. operations—which leads to the next issue; tax-funded government benefits. As U.S. taxpayers, Pfizer and its employees have every right to “directly benefit from public spending in America,” including the “government research on drugs” like “the main ingredient in its arthritis drug, Xeljanz.” It has a right to patent protections. It has a right to access the public schools, public roads and public transportation. “The taxpayers” is not some disembodied collective, separate from the people who actually pay the taxes. Taxpayers are the people who pay taxes, and Pfizer and its employees are taxpayers who are entitled to the benefits its government provides, just like everybody else, precisely because “the taxpayers” pay for them. What is not fair is for our government to grab taxes from profits earned in other countries.

Furthermore, Pfizer has a moral right to spend its dollars on American politics in order to influence tax legislation for the purpose of protecting its interests. In fact, to the extent the company succeeds in influencing congress to end America’s taxation of foreign profits and get America’s tax rate down to competitive levels, the company will have ended the rational incentive for corporate tax inversions. That’s more than you can say for tax-crazed “liberals,” who only want to make inversions illegal rather than reform the tax code and make it less confiscatory and perverse, in effect building a “Berlin Wall” to keep great American corporations trapped in the politicians’ tax hell. Constitutionally, Pfizer’s political contributions are protected by the First Amendment, which sanctions “the right of the people peaceably to assemble, and to petition the government for a redress of grievances.” Statists would love for the politicians to have carte blanche power to legislate over the citizenry without having to be “influenced by those pesky private constituents. But we are, after all, a representative republic, not a royal dictatorship ruling over its subjects.

An objective look at Pfizer’s inversion paints a completely different picture than this editorial presents. Corporate taxes, if not eliminated, should be made much less unfair; e.g., a flat, much lower rate unencumbered by the myriad exclusion, write offs, credits, and other crony structures. The epithet “shameless” should be pinned on our political leadership for the shabby treatment it accords America's corporations, many of whom must invert to escape from the unfair foreign tax grab. Pfizer’s inversion is not an “abusive tax dodge.” The shoe is on the other foot. America’s corporate tax structure is an abusive tax grab.

The only thing shameful about Pfizer’s tax inversion is its lame excuse for doing it—the tired old collectivist justification that the inversion is “a good deal for the United States.” It is, because the inversion will allow Pfizer to reinvest back into the U.S. without paying draconian taxes. Investment does lead to more jobs, not to mention new and better products. But this justification makes Pfizer look evasive and phony and gives undeserved legitimacy to the company’s statist enemies. The company should proudly announce that it is moving to protect its own interests by legally avoiding America’s draconian tax grab of its well-earned profits; that it refuses to be exploited any longer, and it’s not going to take it any longer. Pfizer should say it, because it has the moral high ground on this issue.

Pfizer’s “tax dodge” is bad for America only from the statist perspective of private citizens as subjects to the collective. From a pro-liberty perspective, Pfizer’s corporate inversion is quintessentially American. Kudos to Pfizer.

---------------------------------

There is an immense irony here. Reuters reports that “Under U.S. law, corporations do not have to pay income tax on most of their overseas profits until they are brought into the United States. These earnings can be held offshore for years if they are classified as indefinitely invested abroad.”

Bloomberg estimates that American companies have $2.1 trillion in foreign-generated profits “parked” overseas. All of this money has been taxed already in the country in which it was earned. The irony is that if these companies really wanted to invest all of this money abroad, they wouldn’t have to pay the taxes—which means there would be no incentive to invert. The incentive to invert arises when U.S. companies want to invest their overseas profits back in the U.S. But the tax burden inhibits this re-investment. For example, consider Apple. As CRN reports, in 2013 Apple, which then had $145 billion in cash (it’s more now), borrowed $17 billion for corporate purposes. Why? Because borrowing was cheaper than repatriating cash from abroad. If Apple had tapped its overseas horde, it would have paid $6 billion in U.S. taxes; taxes on profits earned abroad and already taxed once by foreign countries.

If Apple were to invert, the inversion would actually have made it easier to reinvest its foreign-generated cash in America. Grubby American politicians, especially on the Left, don’t care about jobs or fairness. They want the loot to fund their pet projects, hand out to freeloaders, or just fund their statist, central planning schemes.

Related Reading:

John Farmer’s Moral Inversion on “Tax Inversion”

Corporate Tax Inversion is an Act of Economic Justice.

Chuck Jaffe’s Moral Inversion on "Tax Inversion"

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

Tax Inversion: “Fiduciary Duty to Shareholders” vs. “Duty to Society”