By Kevin D. Williamson
Wednesday, April 06, 2016
The Great Wall of China was built to keep foreigners out;
the Berlin Wall was built to keep residents in. Neither was effective in the
long term, but the United States is nonetheless imitating both, for the worst
of reasons.
At issue here isn’t the physical walls we may or may not
build along the Mexican border, but the economic walls being erected and
contemplated by angry populists in both political parties.
Today’s business headlines are dominated by the question
of so-called corporate inversion, in this case Pfizer’s plan to merge with the
Irish firm Allergan, a plan that was torpedoed by the Obama administration,
which — in plain violation of both the law and traditional American practice —
promulgated a new financial ruled aimed not at stopping mergers of this sort but at stopping this merger in particular, a bill of
attainder by presidential fiat, which is the stuff of banana republics.
Do not allow the terminology here to confuse you. There
is nothing especially complicated about a corporate inversion — it is what
happens when the government makes tax refugees out of businesses. A U.S. firm
merges with a foreign firm, and moves the corporate headquarters abroad,
generally (though not exclusively) for tax purposes. Note that in this case,
Pfizer was not seeking to relocate its corporate domicile to some Caribbean tax
haven but to the Republic of Ireland, which has lower taxes than many European
countries but is hardly an outpost of Rothbardian stateless capitalism.
Our progressive friends sometimes bemoan the fact that
the United States is the only economically advanced country that fails to offer
this or that government benefit; this month’s complaint is mandatory family
leave. Those things are not entirely trivial, but where the United States truly
does stand alone among the advanced countries is in its tax code. This isn’t a
question of rates (though the United
States does have the highest top corporate-tax rate in the world) but a
question of jurisdiction. Most
countries have what are called “territorial” tax regimes, under which a
corporation or a resident pays taxes on income or business activity within that
country, while income earned in other countries is taxed under the laws of
those countries. The United States is nearly unique in demanding that
businesses and residents pay taxes on all income earned anywhere on Earth.
Combined with the unusually high U.S. corporate-tax rate,
the unusually corrupt and complex U.S. corporate-tax code (which serves as a
means of subsidizing politically connected firms and industries), a mercurial
regulatory environment (e.g., executive fiats blocking perfectly legal
corporate mergers), an ugly tort environment, etc., many firms, particularly
those that are global in scale, find it more attractive to be based in Ireland,
the United Kingdom, Canada, or Europe, or, less frequently, in Asia or Latin
America. The headline-making inversions of recent years mainly involved U.S.
firms looking to relocate to Ireland, the United Kingdom, Canada, and
Switzerland — they are not going to Mexico or the Cayman Islands.
The response of the U.S. government to this situation
might have been to improve its tax code and its regulatory environment.
(Governments worried about losing out to tax havens should seriously consider
becoming the tax haven; imagine the attractiveness of combining U.S. law and
North American market access with something like the Swiss or Irish tax
practice.) But rather than reform itself, the government has opted to build a
wall — not to keep the Mongols out, but to keep Pfizer in. That the wall is a
virtual wall, composed of arbitrary executive-branch rulemaking rather than
stone, is in the 21st century largely incidental.
Oh, but those are just big, nasty corporations, run by
toxic greedheads! But it is you, too, Sunshine. A country that will build
virtual walls to keep corporations in will do the same to individuals, and,
indeed, the United States already is well advanced in that project.
I used the phrase “banana republic,” but what the United
States increasingly resembles is a bauxite republic, namely Jamaica. Most
civilized countries make allowances for the fact that, no matter how peaceable
and prosperous they may be, some people will desire to leave and to become
citizens of other countries. Most nations do not make this very difficult: In
Japan, for example, there isn’t even a fee to terminate one’s citizenship, nor
is there in Ireland, Sweden, or South Africa. Terminating your relationship
with thrifty Singapore costs $27. Jamaica, the government of which is like
something out of a Joseph Conrad novel, is an outlier, and its termination fee
— which is more than $1,000 — exceeds that of any other nation in the world.
Except for one.
The United States has been experiencing years of
record-breaking numbers of Americans renouncing their citizenships. They do
this for many reasons, one of which is that the U.S. government makes it very,
very difficult to be an American abroad. You may have heard of those fabled
Swiss bank accounts behind the anonymous numberings of which (so the legend
goes) outlaws and shady billionaires hide their filthy lucre. That’s always
been something of an exaggeration, but, while the gentlemen in Geneva and
Zurich are still happy to open up discrete bank accounts for people from all
over the world, they generally refuse to do so for Americans, because doing
business with Americans entangles them in American banking regulation, one of
which is called FATCA, an incomplete acronym that illustrates what happens when
obsessive-compulsive disorder encounters attention-deficit disorder. FATCA,
which is intended to help federal revenuers hunt down U.S. tax scofflaws,
imposes such cumbrous burdens on overseas financial firms that many of them
simply refuse to do business with Americans at all.
As a result of this and other burdens, many Americans who
reside mainly abroad or who have strong ties to other countries renounce their
U.S. citizenship. While Jamaica charges its absurd $1,010 exit fee, the United
States charges more than twice that amount, $2,350, which is almost five times
what it was only a few years ago. The State Department, which had access to the
famous managerial acumen of Hillary Rodham Clinton, late of the Rose Law Firm,
maintains a very large backlog of these cases.
But it isn’t simply a matter of handing in your passport
and writing a $2,350 check. The U.S. government also lays claim to your assets
if you have any to speak of or if your income has been large. (People who give
up their U.S. citizenship tend to be wealthy.) In some cases, the U.S.
government purports to have the power to tax you for the rest of your life,
regardless of whether you are a citizen of the United States or reside therein.
The Hotel California had nothing on the Hotel IRS.
Brent Saunders, the CEO of Allergan, described the
situation accurately: The United States, he said, is building a wall around
itself. And the rule of law, the notion upon which this nation prides itself,
turns out to be no defense: “We followed the rules that Congress had set,” he
said. “For the rules to have changed after the game had started to be played is
a bit un-American, but that’s the situation we’re in.”
You may remember the film Dave, in which a naive imposter takes over the role of the
president, eventually sparking a confrontation with the murderous political
henchman who, upon being informed that he cannot have the impersonator
assassinated, declares: “He’s not a president. He’s an ordinary person. I can
kill an ordinary person.” If the government can arbitrarily change the rules to
make Pfizer conform to the political desires of the president, it can damned
sure do the same thing to a nobody like you.
It is one thing to build a wall to get control over your
borders and those who would enter without authorization. But locking out law-breaking foreigners is a very
different prospect from locking in
law-abiding Americans and their businesses. One of those walls is part of a
national-security apparatus; the other is part of a prison. Some of our
tea-party friends like to joke that Atlas
Shrugged wasn’t supposed to be a how-to guide — neither was The Penal Colony.
President Obama is a lost cause, and always has been. But
for his successor, a few words of advice: Mr. President, tear down this wall!
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