Else, tax versions won’t go away.
Nothing galvanizes bipartisan opposition quite like flawed tax policies, as the Obama Administration recently learned when 18 former high ranking U.S. Treasury officials of past administrations from both parties publicly rebuked Treasury Secretary Jack Lew for Treasury’s latest proposal to discourage corporate inversions. Their assessment was succinct: the Treasury’s ‘ ix’ will likely make matters worse. Instead, they urged Lew to focus on “addressing the competitive disadvantages that are harming capital investment, employment, and economic growth in the United States.” In other words, let’s get serious about reforming America’s tax code.
Inversions, where U.S.-based corporations relocate their official headquarters to another country with a more favorable tax rate, should be discouraged. But it’s a mistake to view the phenomenon, as Obama administration officials do, through the singular lens of recovering millions of dollars in lost tax revenue. Instead, they should recognize corporate inversions as the manifest result of an American tax structure that’s inhospitable to business. Or, as former Treasury officials, including ex-Secretary George Shultz smartly put it, “Inversions are a symptom. The disease is America’s anomalous international tax code.”
While the new rules are temporary, pending a public comment period on July 7, they nonetheless do nothing to fix the systemic flaws within the U.S. corporate tax structure. Nor do they discourage the practice of corporate inversion. They don’t lower the rate. They don’t institute fairness by adopting a territorial system. They do nothing to indicate the U.S. wants to host more enterprise. They don’t make America a more hospitable, business-welcoming environment, which means, in the end, neither will they lead to more tax revenue.
Some of these new rules are so far-reaching that they seek even to change the very definition of the basic business accounting concepts of “equity” and “liability.” It’s why the Wall Street Journal has reported that corporate tax lawyers who’ve delved deeply into the new rules say they cast aside “decades of precedents and force corporations to alter routine cash-management techniques.” The new regulations that could wrap in collection of tax liabilities on cash management, in part derived from the 47-year-old Section 385 of the tax code, would have a chilling effect on American enterprise.