Tuesday, August 23, 2016

Hillary Clinton’s “Exit Tax” Is an Unseemly Example of Banana Republic Economics

By Daniel J. Mitchell of Cato. Excerpt: 
"The Wall Street Journal opines on the issue and is especially unimpressed by Hillary Clinton’s irresponsible approach on the issue.
Mrs. Clinton is targeting so-called inversions, where U.S.-based companies move their headquarters by buying an overseas competitor, as well as foreign takeovers of U.S. firms for tax considerations. These migrations are the result of a U.S. corporate-tax code that supplies incentives to migrate… The Democrat would impose what she calls an “exit tax” on businesses that relocate outside the U.S., which is the sort of thing banana republics impose when their economies sour. …Mrs. Clinton wants to build a tax wall to stop Americans from escaping. “If they want to go,” she threatened in Michigan, “they’re going to have to pay to go.”
Ugh, making companies “pay to go” is an unseemly sentiment. Sort of what you might expect from a place like Venezuela where politicians treat private firms as a source of loot for their cronies.
The WSJ correctly points out that the problem is America’s anti-competitive worldwide tax regime, combined with a punitive corporate tax rate.
…the U.S. taxes residents—businesses and individuals—on their world-wide income, not merely the income that they earned in the U.S. …the U.S. taxes companies headquartered in the U.S. far more than companies based in other countries. Thirty-one of the 34 OECD countries have cut corporate taxes since 2000, leaving the U.S. with the highest rate in the industrialized world. The U.S. system of world-wide taxation means that a company that moves from Dublin, Ohio, to Dublin, Ireland, will pay a rate that is less than a third of America’s. A dollar of profit earned on the Emerald Isle by an Irish-based company becomes 87.5 cents after taxes, which it can then invest in Ireland or the U.S. or somewhere else. But if the company stays in Ohio and makes the same buck in Ireland, the after-tax return drops to 65 cents or less if the money is invested in America.
In other words, the problem is obvious and the solution is obvious.

But there are too many Barack Obamas and Elizabeth Warrens in Washington, so it’s more likely that policy will move in the wrong direction."

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