One of the too-few happy days in the twentieth century was November 9, 1989, the day the Berlin Wall came down.
For twenty-eight years the Berlin Wall had kept the people of Communist-controlled East Germany locked in. Without the Wall and without the tightly closed borders elsewhere, the people would have simply left the Communist states in larger and larger numbers and walked into the western democracies.
Freedom was incomparably preferred to state control.
I was reminded of that monstrous bit of socialist history by the actions taken last week to prevent Pfizer Inc., the pharmaceutical company, from relocating their corporate headquarters to Ireland from the United States. The US Treasury Department announced a regulatory "wall" around US-based businesses to make it much more difficult for them to simply leave the US for a country with greater after-tax freedom.
For too long, US-based companies have been leaving the US, relocating to more tax-friendly countries. Tax-friendly countries demand a much smaller share of the profits than the United States. Among the developed countries, the US demands the highest share of company profits. In addition, the US demands the same high share from profits that the company earns from doing business in other countries, something other countries do not do. Not surprisingly, companies which have significant international operations realize they would be much better off if they moved to a friendlier country, with greater freedom from high levels of taxation.
Understandably, US citizens are not happy to see iconic US companies decide to leave the country. There is a matter of national pride, and more importantly, there is a significant loss of tax revenue. The loss of tax revenue means that you and I are left with a now heavier tax burden.
(The lost tax revenue is not necessarily what you think it is. Companies that move out still leave their US-based operations, and still pay the same taxes on corporate earnings in the United States. The lost tax revenue is the second layer of taxes imposed on corporate earnings; the tax shareholders must pay on company dividends. For companies that move offshore, the tax on shareholder dividends, in large part, is payable to the new country of domicile, not the US Treasury.)
So you and I have every right to be upset when a company decides to leave for a less unfriendly tax and regulatory environment.
That does not mean, however, that we should welcome the building of "walls" to keep US-based companies imprisoned in America. The wall is a sure indication that bad policy has become intolerable. The solution is not a wall, but a change in policy to make America the best place to grow a business, just like it used to be for the last two centuries.
Corporate taxes need to be reduced to a level at least in line with other countries, and taxes on off-shore profits need to be drastically reduced to allow the money to come home and be put to use on our shores. A lack of a wall is a guarantee of sorts that businesses will be treated fairly. A wall is a sure sign of bad treatment ahead.
Lame-duck President Obama actually could provide useful, and much needed leadership here. He is in a position to take political heat without worrying about being thrown out of office by the voters. But instead of providing the leadership to accomplish the corporate tax reforms, which both parties agree are needed, President Obama chooses to build tax walls and engage in more babbling about fair shares and Republican-bashing. In his mind, and certainly in the mind of Senator Bernie Sanders also, businesses should be paying more taxes.
So-called progressive politicians are fond of increasing taxes. One favorite progressive smokescreen is to increase taxes on businesses. But taxing business only makes it more difficult for businesses to thrive. And if businesses do not thrive, the people do not thrive.
There is a well-known saying that "businesses do not pay taxes, they merely collect them." The taxes collected by businesses are actually borne by customers, employees and shareholders, in the form of higher prices, lower wages, and lower dividends. Taxing businesses is taxing people, but in a roundabout fashion. Nonetheless, if the tax is burdensome, the tax-collecting entity cannot pass along the tax and so the business dies or moves to a better place.
Businesses naturally go to places where they are well-treated. A business moving to your town or state is a cause for celebration. Businesses create jobs and increase the wealth and well-being of their communities. A business leaving your town or state is a disaster; something is wrong, and needs to be fixed. A business leaving the state or the country is not a signal to build a "wall". It's a signal to treat businesses better.