President
Barack Obama’s call for an end to “inversion,” a practice that allows
corporations to cut taxes by acquiring a foreign address through merger or
acquisition, is certain to whip up populist fervor among those who are always
willing to think the worst of Big Business.
His
attack on the practice, used by 47 U.S. corporations over 10 years, is likely a
rhetorical precursor to fall election campaigns in which Democratic candidates
are poised to portray Republicans as defenders of corporate loopholes.
Missing
from that political spin will be the fact that corporate taxes in the United
States are the highest in the industrial world, which may explain why some
major firms have gone address shopping.
The
Tax Foundation reported early this year that U.S. corporations face the highest
statutory rate in the world at 39.1%, a rate that combines the 35% federal rate
and the average rate in the 50 states. Only Japan, France and Belgium are
close, according to figures from the Organization for Economic Cooperation and
Development. Competitors such as Germany (30.2%), Canada (26.1%) and the United
Kingdom (23%) are down the list.
Scandinavian
nations such as Sweden, Finland, Norway and Denmark — often portrayed as
high-tax countries — tax corporations at rates ranging from 22% to 28%.
Ireland’s economic platform is built, in part, on a 12.5% corporate rate.
While
Obama and others are right to worry about the long-term implications of
American companies effectively renouncing their citizenship, the larger issue
facing the White House and Congress is American competitiveness in a global
economy. Tax reform that lowers rates and closes loopholes such as inversion
should be the answer.
Read this commentary in the Milwaukee Journal Sentinel here.
Closer
to home, the recent exchange between incumbent Gov. Scott Walker and challenger
Mary Burke over the “outsourcing” of jobs illustrates that politics
and economic reality can clash at the state level, as well.
Republican
Walker has gone after Democrat Burke over the supposed outsourcing of jobs by
Trek, the Waterloo-based bicycle manufacturer. Founded by Burke’s father,
Richard, and now led by her brother, John, Trek employs about 1,000 people in
Wisconsin and another 800 abroad. It cranks out high-quality bikes in Wisconsin
as well as Germany, Holland and China — precisely because Trek wants to be
close to those markets.
In
turn, Burke has chastised the Walker administration because the Wisconsin
Economic Development Corp. awarded tax credits in 2011 and 2012 to two
companies, Eaton Corp. and Plexus Corp., which later outsourced jobs abroad.
Eaton is a global firm based in Dublin, Ireland, and it operates a plant in
Pewaukee. Plexus is based in Neenah and operates in markets across the world.
The
political strategists will continue to slug it out over the details of what
happened at Trek, Plexus and Eaton, but they do so at the peril of ignoring a
much bigger picture voters deserve to understand: Outsourcing is not a
four-letter word. It is a part of how many companies — large or small, foreign
or domestic — do business in the modern world.
Wisconsin
represents roughly 2% of the U.S. economy and a fraction of a world economy
that is growing relative to the United States, thanks to the emergence of a
middle class in countries that previously had little ability to buy American
goods and services.
For
Wisconsin to prosper, it cannot possibly sell everything it produces — on its
farms, in its forests, in its factories or through its high-tech firms — at
home. It must market and sell goods and services to a $72 trillion world
economy.
Globalization
has become a two-way street. The economies of the United States and Wisconsin
are increasingly intertwined with those beyond our borders.
For
example, a flip side of global outsourcing is “reshoring,” in which
companies bring back jobs and production to the United States due to rising
labor and transportation costs, regulatory problems and political instability.
Foreign direct investment also attracts dollars, companies and jobs to
Wisconsin and the nation.
Narrowly
drawn political debates can appeal to voters whose values predispose them to
believe the worst about an issue. But politics should be about bringing out the
best in people and the election-year discourse, which is a unique platform for
talking about major challenges. Whether the issue is inversion or outsourcing,
voters deserve to know enough to look beyond the rhetoric.
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