I don’t like paying taxes any more than most people, but in times like today with all the turmoil in the Middle East and the Ukraine, by way of example, not limitation, I am happy to know that a good chunk of my money keeps America the stable country that it is. It’s not only defense, but our criminal and civil justice system, police and fire protection, highways and infrastructure, public schools, and so much more, that we take for granted and don’t consciously think about and what it all costs. I’ve worked with governments in countries where the police are corrupt, where a businessman has no hope of getting a contract enforced, where a truck has a hopeless time trying to navigate roads not worthy of being called a road, and where the armed forces are a façade. Iraq, Afghanistan, the Ukraine, and so much of the rest of the world typify these problems.
As I’ve written many times in this space, I consider the current tax code morally bankrupt. Others can disagree, but I think to tax the labor of a person at a higher rate than one who makes a living on investments is wrong. I don’t have any original ideas on how to change the code, but I do know that there are people a lot smarter and more experienced about money than I who continue to come up with great tax revision ideas. But don’t look for any of them to be acted on by our Congress.
The latest gimmick that works for the powerful, not the W-2 guy, is a tax scheme called Inversion. It allows for a company to legally claim that it is owned by a foreign subsidiary, thereby shifting profits to a country with a lower tax rate. According to the economist Paul Krugman, the company doesn’t actually move anything overseas. So Walgreen won’t be moving its drugstores and employees to Zurich; only a paper transaction will occur. Adding up the cost of companies taking advantage of this tax dodge will cost the U.S. Treasury many billions of dollars. Krugman states that corporate taxes provide ten percent of the tax revenue to our treasury. If the 2014 budget in rounded numbers is $3.5 trillion, corporations pay $350 billion, about half the cost of defense.
For years it’s been argued that our corporate tax is the highest in the world. But this tax also provides for a myriad of deductions. GE is only one of any number of corporations that have paid no taxes in given years. Yet GE has made a ton of money from the tax payers for selling all sorts of products to the government. Also, again according to Krugman, the higher corporate tax rate offsets the favored treatment given investment income. When all the calculating is done and the revenue from various corporate tax dodges is added up, someone has to make up the shortfall. Invariably, the ones picking up the slack are the powerless, those with no “cash voices” to persuade their representatives that we need change.
I wonder if supporters of tax inversion would feel the same way if it could theoretically be done on a local level. Imagine if companies like Home Depot headquartered in Cobb County could do the same thing by taking advantage of having their property taxes shifted to a county or state where the rates are much lower. The impact on our schools, public safety, roads, courts, etc., would be catastrophic. You could be sure, though, that HD would expect the same quality police, fire and other services. Reducing this issue to where it hits home more directly I think puts it in perspective.
Lastly, I find it troubling that those with the most to gain, and lose, because of the things I’ve mentioned, find it okay to rely on our military to protect their interests, domestic and foreign, if they were to come under attack. They also rely on our federal courts to freeze the assets of countries that have not played nice, that have nationalized American businesses. Cuba, Iran, Syria, and Russia are just a few that come to mind. For these protections, for operating in a country that has an educated workforce, for our various infrastructure, it costs money, and in my opinion, in this instance, patriots are honorable people and entities that know not only the price of everything, but also the value---and are willing to pay for it.