By Kevin D. Williamson
Wednesday, December 16, 2015
What would the U.S. economy look like if there were
eleven new companies the size of Pfizer?
A little back-of-the-envelope math: If those eleven
companies each employed about the same number of people as Pfizer, that would
be the better part of 1 million new jobs, which would take care of about 13
percent of those Americans currently jobless — and if they got nice Pfizer
wages, too, so much the better. There would be an additional $2.1 trillion in
the pension funds and individual retirement accounts invested in those
companies’ shares. If those firms paid taxes comparable to Pfizer’s, their
annual tax payments would exceed the annual total revenue of the National
Football League and would by themselves more than fund the annual budget of the
Environmental Protection Agency or the combined budgets of the Small Business
Administration and the National Science Foundation. The money their employees
paid in individual taxes could fund the entire budget of NASA or the Department
of the Interior.
But we aren’t getting eleven new Pfizers. In fact, we’re
losing the Pfizer we have.
Pfizer is merging with a smaller Irish pharmaceutical
company, Allergan, and the legal headquarters of the new enterprise will be
located in the Republic of Ireland rather than in the United States. The main
reason for this is the U.S. corporate tax, which is effectively the highest in
the developed world (it is exceeded on paper by the corporate tax of one very
poor country, Chad, and one very economically weird country, the United Arab
Emirates). Worse, the U.S. corporate tax is an especially cumbrous levy, with
Washington seeking to tax companies on their worldwide business activities; the
international norm is the territorial tax system, in which a company is taxed
by any given country only on the business conducted in that country.
Merging with a small firm overseas and relocating the
corporate headquarters to a friendlier tax environment is called a
“corporate-tax inversion,” and the maneuver, though entirely legal and ethical,
cheeses off the sort of people who’d like to get their hands on a chunk of that
corporate cash and use it to fund favors for their political supporters. (Also
legal, though not obviously ethical.)
Notice that U.S. companies are not relocating to Caribbean tax havens but
instead to developed, prosperous, high-wage countries such as Ireland,
Switzerland, and Canada, which have tax rates that are high relative to
Gibraltar’s or Montenegro’s but low relative to the United States’.
The result is that many U.S.-based companies keep their
overseas profits overseas, thereby delaying the payment of rapacious American
taxes. Apple is the most famous cash-hoarder; if its more than $200 billion in
sidelined cash were a separate company, it would be a firm somewhere between
Chevron and Exxon in value.
We — we Americans, the investors, workers, and entrepreneurs
behind the greatest economic engine the human race has ever seen — are denied
the benefits that might be derived from the success of American firms abroad
because of the greed and stupidity of American politicians. Never mind the
value of that $2.1 trillion as cash today; imagine what it might have produced
if it had been repatriated and reinvested in new and expanded enterprise. Not
every investment is going to be a home run, of course, but: Google began with a
$100,000 investment; Apple was launched on less than $1 million; Facebook began
as a $15,000 project.
Politicians create economic incentives for firms to do
certain things, such as park their foreign earnings abroad, and then howl when
companies respond rationally to the incentives the politicians created. This is
usually followed by denunciation, which is the mode the Democrats and some
Republicans are in, lambasting as “unpatriotic,” “deserters,” “traitors,” and
guilty of economic “treason” the companies in question. (You’ll recall the
ritual denunciations of Mitt Romney as an “economic traitor.”) The next step is
the threat to use force against firms that won’t toe the political line. Former
secretary of labor Robert Reich, a leading progressive voice, has suggested
stripping dissident companies of legal protections for their intellectual
property. Hillary Clinton has suggested simply seizing the assets of companies
that relocate abroad. (She calls this an “exit tax,” but it is, in fact,
ransom.) Jeb Bush and quondam Democrat Donald Trump both have put forward
punitive measures to discourage tax inversions.
The problem is plunder by politicians, and the answer
politicians are giving is: more plunder.
The reality is that it is getting harder and harder for
politicians to bully businesses. New York City still treats its business
community pretty shabbily, but its leaders do seem to have started to get the
message that nobody really has to be on Wall Street any more. First they moved
to Connecticut, then to Charlotte and Houston and beyond. There was a time when
any serious financial enterprise had to have an office in Lower Manhattan. That
time is past.
What the politicians don’t seem to understand is that
there is no particular reason Apple needs to be a California firm. And, indeed,
California has seen some valuable enterprises (including some Apple operations)
migrate to Texas and elsewhere. All fine. But take the calculation one step
further: There’s no reason Apple needs to be an American firm at all. Yes,
there are many upsides to being domiciled in the United States, but that’s a
cost–benefit analysis, with politicians adding to the “cost” column every year
and doing damned little on the “benefit” side of the ledger.
And Apple has the other 96 percent of the human race to
sell its wares to.
Frédéric Bastiat’s timeless counsel — that we must
account for the unseen as well as the seen — is here applicable: The United
States is a rich country, but one that would be much, much richer if capital
were given a bit more liberty to work its magic. If Los Angeles were as
competently governed as Zurich, it probably would be the richest city on earth
by multiples of whichever came in second. If New York City had had a lot more
John James Cowperthwaite and a lot less John Lindsay . . . who can imagine?
Capital just wants to be loved. It will go where it is
most welcome. And try as they might, the politicians can’t stop it.
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