The Correct Tax Inversion Story

Let’s play “Smart, Stupid or Liar?”

by Rodger Malcolm Mitchell, Myth Fighter

Background: The U.S. governement, being Monetarily Sovereign, never can run short of its own sovereign currency, the dollar. Even if all federal taxes fell to $o, the federal government could continue spending as always.

In fact, deficit spending grows the economy (Federal deficit = economy surplus).

And this is unlike the situation with monetarily non-sovereign entities (states, counties, cities, businesses, individuals), which have no sovereign currency and can run short of dollars.

Given that, let’s play: Smart, Stupid or Liar?

Aon sees payoff from tax inversion

The commercial insurance brokerage now based in London shaved its tax rate to 17.5 percent in the second quarter. Its rate the last time it was a U.S. corporation in the same period: 24.7 percent.

Save 7.2% on taxes: Smart, Stupid or Liar?

The potential savings highlight the allure for North Chicago-based AbbVie to strike a nearly $55 billion deal to buy drugmaker Shire last week, a transaction that will allow it to cut its tax bill by shifting its legal address to the United Kingdom.

Smart, Stupid or Liar?

Administration officials estimate the deals, if allowed to continue, will cost the U.S. Treasury $17 billion in lost revenue over the next decade.

Translation:

Add $17 billion to the economy. Smart, Stupid or Liar?

President Barack Obama has asked Congress to pass a bill aimed at ending the practice. He asked for tax reform that lowers the corporate tax rate. But he says the problem can’t wait. He’s urging lawmakers to join the effort to close the loophole.

So, to prevent “costing” the U.S. Treasury billions, Obama wants to lower the corporate tax rates which will — “cost” the Treasury billions. Rep. Ed Royce, R-Calif., said

“If companies continue to change their domicile, we’re going to lose receipts, we’re going to lose jobs.”

Royce says the changing the address (not the location) of a company’s headquarters (not its office or plants) costs the U.S. jobs.

Smart, Stupid or Liar?

The Council of Economic Advisors to the President (CEA) consists of 3 economists plus a professional staff of 15-25. The heads of the CEA, the Treasury Department and the Office of Management and Budget (OMB) form a group known as the Troika, which analyzes economic conditions and makes recommendations.

So all these economists advise the president on economic conditions, and apparently not one of them has told the President that:

1. Federal taxes do not finance federal spending;
2. Federal deficit spending is necessary for economic growth;
3. Federal taxes are recessionary in that they remove dollars from the economy;
4. Taxes take income and profits from business, reducing business sales investment and employment.

Stupid, Smart or Liars?

Obama: Offshore ‘tax inversions’ are unpatriotic.

Obama says Americans don’t get to pick which rules they follow and neither should companies.

The President says being patriotic requires paying more taxes than the law specifies. He also says that if people move their investments offshore, they don’t receive tax breaks. (It would be rude to ask the President whether he pays more taxes than he needs to.)

Smart, Stupid or Liar?

Republicans in Congress, have supported broad tax reform that would eliminate loopholes and lower corporate tax rates in an effort to reduce the incentive for companies to relocate in countries with lower tax rates than the U.S.

The Tax Reform Act of 1986, with its basic structure of “broadening the tax base and lowering rates,” has become the lodestar for bipartisan tax reform. The Moment of Truth report by National Commission on Fiscal Responsibility and Reform Co-Chairs Erskine Bowles and Alan Simpson, the report of the Bipartisan Policy Center’s Debt Reduction Task Force led by Alice Rivlin and Pete Domenici, and the U.S. Senate “Gang of Six” budget blueprint have all proposed variations of the “broadening the tax base and lowering rates” reform framework.

Translation:

“Broadening the tax base” means: Charge the poor and middle-incomes more. Lowering rates means: Charge the rich less. President Obama hired Bowles and Simpson, and their recommendations led to the sequester, which slowed economic recovery.

Smart, Stupid or Liars?

Bottom line: Both parties are bribed by the rich (via campaign contributions and promises of lucrative employment later). Economists are bribed via employment. So both parties are incented to do what the rich want, i.e. widen the income / wealth / power gap between the rich and the rest.

There probably are some in Congress who are stupid enough to believe the Big Lie that the federal government needs tax dollars to “live within its means.” The President is not stupid, but he needs to opt for lower deficits, because deficit spending benefits the lower income groups, thus narrowing the gap.

So he raised FICA, cut Social Security benefits, hired Bowles/Simpson, tried to implement his “grand bargain,” which would have punished the less affluent, and said the government is like you and me in that it “needs to live within its means”.

President Obama: Smart, Stupid or Liar?

The most effective gap widening strategy would be to cut corporate taxes while “making up for the loss” by broadening the tax base. That is what I expect Congress and the President to do.

What should Congress do?  See below.

10 Steps to Prosperity

1. Eliminate FICA (Click here);
2. Federally funded Medicare — parts A, B & D plus long term nursing care — for everyone (Click here);
3. Provide an Economic Bonus to every man, woman and child in America, and/or every state a per capita Economic Bonus. (Click here) or institute a reverse income tax;
4. Free education (including post-grad) for everyone. (Click here);
5. Salary for attending school (Click here);
6. Eliminate corporate taxes (Click here);
7. Increase the standard income tax deduction annually;
8. Tax the very rich (.1%) more, with higher, progressive tax rates on all forms of income. (Click here);
9. Federal ownership of all banks (Click here);
10. Increase federal spending on the myriad initiatives that benefit America’s 99% (Click here).

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10 Steps to Economic Misery (Click here)

1. Maintain or increase the FICA tax;
2. Spread the myth Social Security, Medicare and the U.S. government are insolvent;
3. Cut federal employment in the military, post office, other federal agencies;
4. Broaden the income tax base so more lower income people will pay;
5. Cut financial assistance to the states;
6. Spread the myth federal taxes pay for federal spending;
7. Allow banks to trade for their own accounts; save them when their investments go sour;
8. Never prosecute any banker for criminal activity;
9. Nominate arch conservatives to the Supreme Court;
10. Reduce the federal deficit and debt.