Skip to comments.Self-Destruction through Taxes
Posted on 06/30/2014 4:02:07 AM PDT by markomalley
If ever there were good political reason for both parties finally to cooperate in passing at least one type of tax reform, two economic stories in the past fortnight provide that reason in abundance.
Two weeks ago, Medtronic, Inc., a major medical-device manufacturer in the U.S., agreed to merge with rival Covidien PLC, domiciled in Ireland. The companies merged largely to escape the outlandishly high American corporate-tax rates that are piled atop Obamacares senseless medical-device tax.
Last Wednesday, the Commerce Department made a stunning downward revision in its report of first-quarter gross domestic product, announcing that the economy contracted at a 2.9 percent annualized rate for the first three months of this year. This came after economic growth already had cooled to a 1.9 percent rate in 2013, down from 2.8 percent in 2012. In short, the already historically weak recovery under President Obama weakened even further last year, and the economy actually contracted from January through March of 2014.
The two stories are connected in this way: Obamas high-tax, high-regulatory, anti-business policies have acted as a depressant on the natural recuperative powers of the American market economy. One result is that American companies such as Medtronic continue to outsource profits and jobs in order to thrive.
Medtronic is just the latest example of a growing trend of tax inversion mergers. The Wall Street Journal called attention this month to the wave of recent moves, and Senator Rob Portman (R., Ohio), in a Wall Street Journal opinion piece, noted that more than 20 major American companies have reincorporated elsewhere in the past two years. Attesting to the bipartisanship of lawmakers concern, Senator Ron Wyden (D., Ore.) also blames the high U.S. corporate tax rate for this wave of inversions.
The corporate tax rate of 39 percent, by far the highest in the developed world, is bad enough in itself. Its even worse for the makers of life-saving medical devices such as pacemakers, vascular stents, asthma inhalers, and insulin pumps. Thats because it comes on top of the Obamacare device tax, which is assessed not on profits but on gross sales. This means that sometimes the tax actually exceeds the profits of these small start-up companies and pushes them into the red. Medtronic, one of the bigger and more profitable medical-device companies, pays an estimated $40 million to $60 million annually for Obamacares device tax alone.
The job losses in the industry have been staggering, as shown in this collection of headlines (this is one link you will definitely want to follow). One industry source tells me that since January 1, 2013, this tax has killed one American job every seven minutes. Less than a month ago, for example, Teleflex announced that it plans to close its plant in Asheboro, N.C., and lay off more than 600 workers while moving its operations to Mexico. And those are just the direct layoffs; the number of indirect jobs harmed by this one plant closing, according to the same industry source, approaches 1,800.
As bad as the job loss is, the potential losses for patients might be worse. Many med-device enterprises are start-up outfits that will never get off the ground if burdened by the gross-receipts tax. If they fold, their innovations never have the chance to save or improve a single life. Advances in care will be lost, as will potential savings from less invasive (and often more humane) forms of treatment.
All of this points to the conclusion that there is no real constituency for the medical-device tax other than Obama administration die-hards who are still fruitlessly trying to hold on to the long-disproved claim that Obamacare will at worst be revenue-neutral. If Democrats in the Senate were smart, they would see the increasing likelihood of their majoritys slipping away and reach out for a lifeline for something, anything reasonable, that could separate them from the unpopular Obama administration and put them on the side of American workers and patients. Repealing the device tax would fill that bill.
Republicans, meanwhile, should gladly take the chance to show that they are capable not only of railing against the evils of Obamacare but also of effectively mitigating some of its ill effects.
The med-device tax, though, is small potatoes in comparison to the corporate-income tax. So devastatingly high is the top corporate-income rate that even Obama has long been on record for slicing it although he has never lifted a pinkie finger to do so. As is recognized by Portman, Wyden, and a growing bipartisan coalition of analysts and business leaders (including leaders of companies with longstanding liberal ties, such as Nike and Disney), these rates, which keep some $2 trillion of profits parked overseas, act as sludge choking the engines of the American economy.
And, as both the decidedly anti-Lafferite economist Laurence Kotlikoff and the Congressional Budget Office have shown, its the workers who bear the brunt of the high corporate taxes, not investors or corporate chieftains. Even the most business-baiting Democrats should be able to see that cutting corporate tax rates while getting rid of special-interest tax breaks is the best way to in-source jobs back to Americans.
Granted, Democratic senators and House members wont be able to go as far as I would like, or as incoming majority whip Steve Scalise, The Atlantics Megan McArdle, and others would like, and completely eliminate the corporate-income tax. But if vulnerable Democrats want to make a splash as free thinkers while shoring up moderate business support and appealing to intelligent workers at the same time, they could join with Republican reformers on a bold plan. To wit:
With appropriate moves to close tax loopholes and eliminate a number of deductions (such moves being politically necessary for Democratic anti-special-interest talking points), Congress this very year should pass a bill cutting the regular corporate-income tax to a flat 10 percent, retroactive to the beginning of 2014. Its simple enough to sell on the stump, and nothing could be easier to implement: Businesses could simply determine their profits and then (in effect) move the decimal point one numeral to the left and send that amount to Uncle Sam.
The defibrillation of the economy would be almost immediate, if for no other reason than that investors and executives would anticipate that they could keep a much greater proportion of their profits and this expectation in itself would jump-start growth. Businesses would probably rush to put the anticipated windfall to good use as fast as possible, to gain competitive advantage while they could. A gusher of productive investment and hiring would follow.
Otherwise, our own foolish government with foolishly punitive corporate taxes will continue to stifle economic growth, jobs, and income. In an editorial last week, the Wall Street Journal condemned the policies leading to a corporate exodus, asking: What kind of country does this to itself?
The answer is: our kind of country, a nation whose sloth causes acute economic atrophy. Unless we come to our senses and change our tax policies soon.
It'll never happen without a wholesale change of cast in the legislative branch and that's unlikely since they've been busy buying the votes of their various LIV constituencies with tax dollars.
Self-destruction through taxes ia an autoimmune disease.
Autoimmune disorder is a condition that occurs when the governing system both mistakenly and deliberately attacks and destroys healthy body politic.
It is caused by unstable radicals.
The system gets overwhelmed by aged 1960s Marxist-Alinsky campus radical, psycho spoiled brats and their ideological litters.
We must act quickly. Defibrillation is a temporary solution we must
Void the bowels of Washington, D.C. 2014 - 2016
Yep. Since the premise is completely wrong, everything that follows falls apart. Making things better for us will take away the gravy train that “both parties” are riding.
-- Barack Obama
The author didn’t address another issue: the trapping of corporate profits earned off-shore by the companies. These are funds that they have earned and have paid taxes on in the country of origin. They can’t bring them back for reinvestment in the US without paying an outrageous repatriation tax.
So, the tax rate drives the companies away; and the repatriation tax makes sure none of the money they earn overseas ever comes back to the US in the form of investment and subsequent jobs.
Actually it wouldn't. It has been shown that government revenues INCREASE as taxes are reduced due to expanding economic activity. The Democrats for sure and the Republicans to to a lesser extet aren't about making things better all around. They'd rather have less total than a smaller slice of a much larger pie. It's about keeping their constituents happy. The primary motivation for Democratic voters is ENVY. They don't care to get ahead - that would require work and an end to their culture of self ingulgent entitlement mentality. They're much happier seeing those who work and strive get punished.
Obama’s pathological hatred for the white middle class will not allow him or any of his radical followers to endorse any act that might improve the economy for that demographic. And his bankster masters don’t care about the corporate tax - they have a million ways not to pay it and it’s an effective tool to stifle their future domestic competition.
Now, four years later, they are building huge campuses in China.
I got a good laugh out of this story. Not because I disagreed with it — the author makes a lot of sense — but because he thinks that this argument may persuade someone. The Dems impose taxes to force those evil corporations and rich people to pay their fair share. What is their “fair share”? More, more, more. When you have spending that is as out of control as ours is, the government looks for more tax revenue, not less. And there’s no way in Hell the government is going to tax the 50% who pay little or no taxes.
When companies have to pay more and more protection money to a bankrupt government that spends far more than it takes in, economic recession and depression are inevitable. Businesses need money to operate, and unlike the government, do not get to operate at a loss for decades.