Asininity is a common malady of the political class. Nevertheless, one of the more moronic examples I have seen was a letter by Treasury Secretary Jack Lew to House Committee on Way and Means Chairman Dave Camp on July 15th. In the letter Mr. Lew argues we should fence in American corporations, calling for “a new sense of economic patriotism.” He argues that American companies, in being responsible stewards of their owner’s wealth, are “effectively renouncing their citizenship.” That was a curious metaphor for an Administration that argues, in cases like Citizen’s United and Hobby Lobby that corporations are not individuals. To whom is owed a corporation’s primary loyalty – the government of the United States, or their shareholders, customers and employees?
Most importantly, the letter was not a serious attempt to resolve a real problem. It was political spin. Mr. Lew is upset about the practice known as corporate inversions. A corporate inversion is a strategy employed by companies with significant overseas operations to reduce U.S. taxes on earnings generated abroad. The United States, besides having the highest corporate tax rate among major countries, is the only one of the Group of Seven to tax earnings generated abroad, even though these companies have already paid taxes in the country in which the earnings were generated. It is the main reason why multinational U.S. companies keep high levels of cash abroad. Inversion is a legal strategy, permitted under the U.S. Tax Code.
What made the letter especially feeble was that Mr. Lew knows what should be done. He begins his fifth paragraph: “The best way to resolve this situation is through business tax reform that lowers the tax rate, broadens the tax base, closes loopholes and simplifies the tax system.” Amen and Hallelujah! Bipartisan support could be found for such proposals. These are all ideas recommended by Republicans like Paul Ryan. So why not work with Congress to pass tax reform? Mr. Lew urges that time is of the essence, but the question goes unanswered. There is little doubt, however, that Mr. Lew would raise such standard objections that obstreperous Republicans in Congress have no interest in working with selfless Democrats like himself. Instead he decided to pursue a cockamamie idea that will cause political opponents to retreat even deeper into their respective corners.
What the Treasury Secretary would like Congress to do is to pass legislation that would negate the aspect of the Tax Code that specifies the terms and conditions under which inversion is permitted. His wording is disingenuous. He makes no mention that corporate inversions are legal under the tax code: He writes, “Congress should enact legislation immediately – and retroactively to May 2014 – to shut down this abuse of our tax system.” His claim is that companies adopt such measures to avoid paying their “fair share of taxes,” as though obeying the law is not what corporations should do. There is, of course, no attempt to define “fair share” – a meaningless phrase solely designed to provide the speaker or writer a sense of moral superiority.