Senator Dick Durbin introduced a bill Tuesday that targets corporate inversion. Inversion is the practice of a company re-incorporating overseas in order to avoid punitive tax rates at home. The practice has come under fire recently from Democrats who want to be able to eat their cake and have it too. Many large corporations, including giants like Walgreen’s, have expressed a desire to avoid paying the second highest corporate tax rate in the world, behind only the United Arab Emirates.
Unwilling to learn from domestic lessons that show states with lower tax rates receive more tax revenues by encouraging business growth, Democrats are determined to engage in a form of protectionism that is likely to create more problems than it solves. The No Federal Contracts for Corporate Deserters Act itself would deny government contracts to companies that are incorporated overseas but whose shareholders are more than 50 percent held by Americans and have no substantial business in the country they are re-incorporated in.
The tax code in the United States has long been a point of contention for many corporations; some 47 companies have left for other countries since 2003 in order to avoid the high rates. The main problem is that the federal government struggles with basic concepts of economics. Baseline budgeting, class warfare and absurd demagoguery for political points aren’t going to solve the problem, they only serve to exacerbate it.
For example, Canada reduced their tax rates from 28 percent in the 1990s to around 15 percent today, and they have been the beneficiary of many of these inversions. Tax revenues have increased accordingly, both in dollars and as a percent of GDP. The same is being seen in other trading partners like the United Kingdom.
Other countries also have an interest in doing business with us and other nations. They will often choose to send their jobs and tax revenues elsewhere for the same reasons. Unfortunately, the federal government in general, and Democrats in particular, have a difficult time accepting that incentives are a major part of doing business. If you tax something, you will get less of it.
The talking points have been to demonize the companies who wish to remain in business, profitable and able to grow by calling them unpatriotic and deserters. “When it comes to a competition between companies, if we have, on one hand, an American company paying its fair share of American taxes, competing with an inverted corporation that has decided to go overseas, we believe, advantage America,” Durbin said of his bill.