Thursday, August 28, 2014

No big deal - it's just an inversion

Taxes are collected for the benefit of the people who pay them. This is a golden rule of taxation that is ignored by any government at their own peril. The best example is the gas tax. The gas tax is collected to support the maintenance of the roads we drive on every day. When governments raid the coffers for some other purpose, they are violating this rule.

So it should come as no surprise when people find that their tax money is being spent for the benefit of other people who didn't pay the tax. I speak of corporations, the group of taxpayers who now make up about 9% of federal revenue, down from 35% they used to pay back in the 1950s. Yes, it's been a long, long slide down to the current revenue scheme, but we're here.

Unfortunately, 9% is still too much for some of the biggest corporations, and I mean this with absolutely no sympathy. What we have seen during this transition is a shift in tax burden from corporations to the individuals who buy from them and work for them. The trend is continuing as corporations become global and find even more ways to mitigate their tax liability.

This is ironic considering all of the benefits they receive from US residency. They enjoy protection from a military force that is second to none in the world, around the world, 24/7. They enjoy access to one of the largest consumer markets in the world. They enjoy copyright and patent protection that is second to none. For some of the largest corporations, their employees dine on food received through government assistance programs to subsidize low, low wages for low, low prices at the checkstand. Let us not forget a skilled labor pool built on government subsidies in education, research and development.

Now comes corporate inversion, the latest fad. Yes, with corporate inversion, corporations can renounce their citizenship and finally doff the last remaining tax burden off on the middle class in what amounts to 100% pure contempt. There is no altruism here, that's for sure.

Given the slide in corporation tax payments over the last 60 years, we would expect wages to rise, but they didn't. In fact, over the last 30 years, they have either gone sideways or fallen when adjusted for inflation. It seems that with every tax cut, shareholders would rather take profits than invest in employees. Oh, wait. They could make capital investments that reduce their need for employees. So there's a temporary boost to the economy, but that won't help wages, you know, for the people who actually buy things.

This kind of behavior by bad actors like Burger King, the most recent applicant for inversion, has not gone unnoticed. There is legislation pending that would exclude "inverted" corporations from consideration in lucrative federal contracts. Proponents of this legislation say that the people who benefit from government programs should pay the taxes that support them. Inverted corporations intend to extract government benefits without paying for them. With public, legislative and legal scrutiny, we can stop the inversions or at the very least, make the process embarrassing or to expensive to pursue.

Consumers can do their part by shopping somewhere else. Just ask Walgreens.
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