Imagine a baseball team with a self-imposed requirement that its players brandish 50-ounce bats, while the other teams use the standard 32-ounce slugger, a huge difference when facing 95 MPH pitches.
There would be two results:
A) The team with the dumb rule would be in last place, since swinging significantly heavier bats would produce fewer hits.
B) Players and coaches on that team would flee to greener pastures, where their values would immediately rise because their productivity would significantly increase.
Common sense dictates that the last place team re-evaluate its policies, make necessary adjustments, and halt its exodus of players. How? By allowing lighter bats, thereby creating a winning environment and achieving a financial windfall.
Naturally, it would be insanity to dig in even further, threatening sanctions against anyone leaving the team.
Even a team so obtuse as to establish such a counterproductive rule would undoubtedly see its error and rectify a bad situation. Right?
Wrong. Welcome to Congress, where both parties adamantly refuse to change one of the single largest factors keeping America stagnant: the world’s highest corporate tax.
The latest story regarding the onerous U.S. tax rate is making waves around the world, as American pharmaceutical giant Pfizer is attempting to buy Britain-based AstraZeneca (so far, four offers have been rejected). While Pfizer’s target has a promising anti-cancer pipeline, there is another compelling reason to acquire the foreign-based firm: massive tax savings.
If the deal goes through, Pfizer would “re-domicile” in the U.K., substantially lowering its corporate tax rate. Britain awakened a decade ago upon realizing that its high rate was driving away business. Since then, the rate has been steadily lowered, attracting wealth and working capital to its shores. The Brits now levy a 21 percent business tax, soon dropping to 20.
Compare that to America’s rate of 35 percent, and it’s a no-brainer why CEOs favor moving overseas. Worse, the effective rates are actually higher, once state and local taxes are factored into the equation.
But that’s not all. There are even more job-killing corporate taxes in many states, including levies on capital stock and franchise, gross receipts, public utility realty, gross premiums, and financial institutions taxes, to name a few. Getting the picture?
Rather than fix the problem (rates that stifle innovation, cause job cuts, and take capital from the free market where it could be invested in projects and people), Congress and many states stand by their draconian policies. Instead of asking why companies flee, and what can be done to halt the exodus, government instead advocates penalizing those with the foresight to seek a more secure location, with some congressmen wanting to make it a crime for businesses to leave.
In Pfizer’s case, it could save more than $1 billion per year in taxes. And the money saved could expand operations, bolster ancillary business, and help fuel the economy. Unfortunately, that investment would occur overseas, creating little benefit in America. All this because our elected officials are too lazy and/or stupid to lower the tax rates.
There will undoubtedly be partisan comments that it’s just the Democrats’ fault. True, that party deludes itself into believing higher taxes and making the rich “pay their fair share” will solve all problems. But this, like every challenge America faces, has its roots in bipartisan failure. The GOP, when it controlled the White House and Congress, did absolutely nothing to improve the situation.
To reverse this, it will take a leader with a clear vision and strong will. But sadly, calls for such a person keep echoing back, unanswered.
It’s bad enough that taxes are so high, but making the sin mortal, the money raised is squandered. High taxes can never be justified, but the pill might not be so bitter if at least the money was wisely spent. But we all know otherwise.
Are there some lobbyist-generated loopholes in the tax code? Sure. But they are a Band-Aid on a gaping wound. If they were the panacea, companies wouldn’t have left and countless others would not be considering the same (Pfizer and Walgreens). The solution is a total overhaul of the tax code so that it is fair and competitive.
Politicians posture against proposed mergers that could take jobs and cash overseas. But if American tax rates were competitive, companies wouldn’t need to migrate to more favorable locations.
"We contend that for a nation to tax itself into prosperity is like a man standing in a bucket and trying to lift himself up by the handle." So said Winston Churchill, and his countrymen have taken note. Yet Uncle Sam remains stuck in the bucket, continually striking out while knee deep in his own mess.
Chris Freind is an independent columnist, television commentator, and investigative reporter who operates his own news bureau, Freindly Fire Zone Media. Read more reports from Chris Freind — Click Here Now.
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