The White House has released a misleading infographic on inversions titled, “You Don’t Get to Pick Your Tax Rate. Neither Should Corporations.”
This is both a terrible title and a terrible pitch to taxpayers. Now, I recognize that I am not the targeted audience for this but in reading the title, all I want to know is: Why can’t I choose my tax rate, Uncle Sam? You think it is okay for me to be trapped in a high tax system? But then there is, of course, the fact is that people actually do make decisions in order to minimize their tax rates such as moving to lower-rate states — ask retirees if there is any tax component to the decision to move to Florida as opposed to staying in New York.
To be sure, taxpayers have a limited amount of discretion when it comes to lowering their taxes by moving to a lower-rate state since, today, no matter where one lives, our biggest tax bill is the federal one. That being said, people certainly take actions in order to minimize their overall taxes by deciding to work or not, to work more or less, to put money in a self-employment account or not, by deciding to get married or not, by deciding where and what to invest, by deciding to rent or buy a house, to declare one’s income or part of it, and more.
It is actually sad how much taxes influence our actions, which is why free-market advocates have been arguing for a simpler tax system with a more neutral structure such as a flat tax.
The same is true for corporations. Many of them have to resort to inversions in order to avoid the penalty imposed abroad by our punishing corporate income-tax system. Its the tax high rate and worldwide tax structure that is driving U.S. corporations to renounce the equivalent of the their U.S. citizenship by incorporating in a foreign country. The White House knows that and, in fact, it has in the past called for a reform of the corporate tax system.
As if that is not enough, the website has this extremely misleading bit:
Inversions — or tax maneuvers that reward U.S. corporations that declare themselves overseas residents to avoid paying taxes in America — have drawn the ire of many Americans as an example of an unfair corporate tax loophole.
It makes it sound as if once they invert these companies will not be paying taxes in the United States. Nothing is further from the truth. A company that inverts would still be paying income tax on its U.S. income.
But since no governmental propaganda would be complete without a call for more programs paid for with the $40 billion the White House feels it is losing to inversions and thinks it is entitled to, the website includes the following: The first seven years of funding for access to high-quality child care, expanding education tax incentives and five years of tax credits that reward work and reduce poverty.
The administration’s plan is basically to do nothing to fix the underlying reasons behind inversions, continue to punish companies as if doing so will have no consequences, and spend more money. However, if I were the administration, I wouldn’t quite spend the money yet. As long as the administration refuses to reform the corporate income-tax system, companies will continue to invert or find ways around the system.
The White House's Tax Rate Graphic Shows How Little They Understand