On July 27, 2014, Paul Krugman writes in The New York Times:
In recent decisions, the conservative majority on the Supreme Court has made clear its view that corporations are people, with all the attendant rights. They are entitled to free speech, which in their case means spending lots of money to bend the political process to their ends. They are entitled to religious beliefs, including those that mean denying benefits to their workers. Up next, the right to bear arms?
There is, however, one big difference between corporate persons and the likes of you and me: On current trends, we’re heading toward a world in which only the human people pay taxes.
We’re not quite there yet: The federal government still gets a tenth of its revenue from corporate profits taxation. But it used to get a lot more — a third of revenue came from profits taxes in the early 1950s, a quarter or more well into the 1960s. Part of the decline since then reflects a fall in the tax rate, but mainly it reflects ever-more-aggressive corporate tax avoidance — avoidance that politicians have done little to prevent.
Which brings us to the tax-avoidance strategy du jour: “inversion.” This refers to a legal maneuver in which a company declares that its U.S. operations are owned by its foreign subsidiary, not the other way around, and uses this role reversal to shift reported profits out of American jurisdiction to someplace with a lower tax rate.
The most important thing to understand about inversion is that it does not in any meaningful sense involve American business “moving overseas.” Consider the case of Walgreen, the giant drugstore chain that, according to multiple reports, is on the verge of making itself legally Swiss. If the plan goes through, nothing about the business will change; your local pharmacy won’t close and reopen in Zurich. It will be a purely paper transaction — but it will deprive the U.S. government of several billion dollars in revenue that you, the taxpayer, will have to make up one way or another.
Does this mean President Obama is wrong to describe companies engaging in inversion as “corporate deserters”? Not really — they’re shirking their civic duty, and it doesn’t matter whether they literally move abroad or not. But apologists for inversion, who tend to claim that high taxes are driving businesses out of America, are indeed talking nonsense. These businesses aren’t moving production or jobs overseas — and they’re still earning their profits right here in the U.S.A. All they’re doing is dodging taxes on those profits.
And Congress could crack down on this tax dodge — it’s already illegal for a company to claim that its legal domicile is someplace where it has little real business, and tightening the criteria for declaring a company non-American could block many of the inversions now taking place. So is there any reason not to stop this gratuitous loss of revenue? No.
Opponents of a crackdown on inversion typically argue that instead of closing loopholes we should reform the whole system by which we tax profits, and maybe stop taxing profits altogether. They also tend to argue that taxing corporate profits hurts investment and job creation. But these are very bad arguments against ending the practice of inversion.
First of all, there are some good reasons to tax profits. In general, U.S. taxes favor unearned income from capital over earned income from wages; the corporate tax helps redress this imbalance. We could, in principle, maintain taxes on unearned income if we offset cuts in corporate taxes with substantially higher tax rates on income from capital gains and dividends — but this would be an imperfect fix, and in any case, given the state of our politics, this just isn’t going to happen.
Furthermore, ending profits taxation would greatly increase the power of corporate executives. Is this really something we want to do?
As for reforming the system: Yes, that would be a good idea. But the case for eventual reform basically has nothing to do with the case for closing the inversion loophole right now. After all, there are big debates about the shape of reform, debates that would take years to resolve even if we didn’t have a Republican Party that reliably opposes anything the president proposes, even if it was something Republicans were for just a few years ago. Why let corporations avoid paying their fair share for years, while we wait for the logjam to break?
Finally, none of this has anything to do with investment and job creation. If and when Walgreen changes its “citizenship,” it will get to keep more of its profits — but it will have no incentive to invest those extra profits in its U.S. operations.
So this should be easy. By all means let’s have a debate about how and how much to tax profits. Meanwhile, however, let’s close this outrageous loophole.
Paul Krugman has always failed to address the MOST significant problem facing Americans and other citizens of the world. That is the system in place assures that the wealthy ownership class will continue to concentrate ownership of wealth-creating, income-producing capital assets in perpetuity. None of the solutions proposed solve the problem of Monopoly Capitalism.
Capitalism, a term cleverly invented by Marxists and promoters of collective and State ownership, is a system that Ayn Rand and Milton Friedman also attempted to promote based on their glorification of “greed” and “selfishness” as moral virtues. The fact that the wealthiest 88 people in the world own more income-producing wealth than the bottom 350 billion members of world society does not trigger the moral sensitivities of these plutocrats. The top 1 percent of Americans own more productive wealth than the bottom 95 percent combined.
Paul Krugman appears to be either unaware or indifferent to the unjust exclusionary barriers in the world’s monetary, tax and other institutional barriers to enabling every human being to enjoy an equal opportunity (not necessarily equal results) to acquire personally or share with others private property rights in new capital formation and voluntary transfers of existing income-producing capital assets, without violating private property rights of existing owners over the capital assets they now own. There solutions are socialistic redistributive in scope, rather than empowering each citizen to contribute productivity and build personal financial security.
At the heart of the obstacle to broadened personal ownership of wealth-creating and income-producing capital assets are the state statutes that create corporations but fail to specify how they must operate. At present corporations are permitted to retain earnings and debt finance, neither of which creates any new owners. Thus, the rich continuously get richer. What the statutes should dictate is that any form of incorporated group association should be encouraged through taxation or effectively required to pay out fully the earnings of the corporation to their stock owners, who would be taxed at personal tax rates, thus eliminating the corporate tax and double taxation. To satisfy further growth of the corporation new shares of stock should be issue and sold to both employees of the corporation and to other citizens. Such new shares should be purchased using “pure credit,” such as insured capital credit loans repayable out of the FUTURE earnings of the investments. Thus, employees would not have to reduce their wage earnings or benefits and other citizens would not have to deny themselves consumption in order to pledge and risk their personal “savings” and “equities” to secure loans to invest.
This proposal is globally feasible because future increases in productive wealth are not dependent on existing wealth but have been historically increased by technological and system improvements and “customers with money” to buy the products and services produced by increased levels of production. To illustrate, America last experienced double digit rates of growth and full employment from 1940-1945, when the government supplied the money and customer power to encourage the private sector to grow faster to produce advanced weaponry needed to win World War II. Money and capital credit are “social tools” that can be used to finance equally fast rates of peacetime growth and broad-based citizen ownership and increased customer power. Newly added money and capital credit are based on promises that are expected to be repaid by future profits as projected by feasibility studies of projected sales and future costs of production that can only be realized in the future, not the past. In the world of commercial banking, capital credit for new capital formation is also backed by newly acquired productive assets, new rentable space and even improved infrastructure that sound feasibility studies have concluded will “pay for themselves” for new owners out of anticipated future profits.
Both newly added money in an economy and capital credit are expected to be backed by real assets, the very opposite of how the Federal Reserve now creates new inflationary money to cover mounting Federal debt and budget deficits of the Federal Government under Section 13(3) of the Federal Reserve Act. Compare that inherently inflationary monetary policy with the Federal Reserve’s unused potential power under Section 13(2) of the Federal Reserve Act to back commercial bank loans for supporting new capital credit for non-inflationary growth of any market economy.
“Pure credit” and capital credit insurance are the financial tools that can universalize access to asset-backed new money to be allocated to every citizen as the key for shifting economic power from government to all citizens by lifting artificial monetary and tax barriers to non-inflationary, balanced and faster rates of inclusionary market-based growth.
Americans must recognize the necessity to impose stipulations on corporations who benefit from government research and other contracts that they demonstrate that their ownership structure is inclusive of ALL employees and other citizens to qualify for consideration of the contract award. We need to condition awarding ALL taxpayer-supported federal contracts (corporate welfare) on the basis that EVERY company vying for a government contract demonstrate that they are broadly owned including ownership by their employees. We need to ensure that if a corporation wants the advantages of being an American company then they should not be able run away from America to avoid paying taxes. Either American corporations pay a stiff corporate tax and remain narrowly owned or they pay no corporate tax but are structured such that they are owned broadly and by their employees. Such policies will stimulate a new era in American technological innovation.
This is the pathway to creating new owners and broadening wealth-creating, income-producing capital ownership to EVERY child, woman and man. EVERY citizen should be empowered equally to have access to insured, interest-free capital credit loans issued by local banks backed by the Federal Reserve to acquire new stock issues in qualified corporations with the principal and insurance fee repayable out of the FUTURE earnings of the investment. This would provide American corporations with all the monies they would need to grow, which in turn would substantially accelerate the growth of the economy, create new capital owners who would benefit from a new income source, and create new job opportunities as the economy revs up to produce general affluence for EVERY citizen. These policies would create a nation of “customers with money,” who overtime can build substantial financial security and eliminate reliance on taxpayer-supported government.
If we further lower or eliminate corporate income tax rates we eliminate our ability to incentivize corporations to finance new growth by creating new owners, without taking away ownership from those who are already owners. We need to close ALL loopholes and subsidies, which would substantially eliminate tax deductions.
We need to define a foreign corporation with at least better than 50 percent ownership vested with foreign nationals and an American corporation with at least 50 percent American citizen ownership. This definition get to the heart of the ownership; it should not be about how many American or foreign workers employed. We also need to look at tariffs on non-American corporations who would have tax advantages over American corporations or who want to participate in the American economy but are narrowly owned.
The bottom line is we need open-minded people from across the political spectrum to wake up and organize to lift the barriers to a more just market system for every country.
Support the Capital Homestead Act at http://www.cesj.org/learn/capital-homesteading/capital-homestead-act-a-plan-for-getting-ownership-income-and-power-to-every-citizen/ and http://www.cesj.org/learn/capital-homesteading/capital-homestead-act-summary/.
Support the Unite America Party Platform, published by The Huffington Post at http://www.huffingtonpost.com/gary-reber/platform-of-the-unite-ame_b_5474077.html as well as Nation Of Change athttp://www.nationofchange.org/platform-unite-america-party-1402409962and OpEd News at http://www.opednews.com/articles/Platform-of-the-Unite-Amer-by-Gary-Reber-Party-Leadership_Party-Platforms-DNC_Party-Platforms-GOP-RNC_Party-Politics-Democratic-140630-60.html.