Remember Robert Reich, the most leftist of Bill Clinton’s Cabinet appointees?
For those who forgot Reich’s leftist twaddle, James Taranto brings it to us to smash it flat:
Robert Reich, the leftist former labor secretary, has a very confused–or perhaps deliberately confusing–post up at Salon in which he denounces American corporations that move their headquarters overseas for tax reasons. The news peg is Chicago-based Walgreen Co.’s planned merger with Alliance Boots GmbH, a multinational pharmacy chain.
The new company would be headquartered in Switzerland, as Alliance is now.
“Walgreen’s morph into a Swiss corporation will cost you and me and every other American taxpayer about $4 billion over five years,” Reich complains, citing a report by Americans for Tax Fairness, a nonprofit corporation that advocates for higher taxes on corporations and high-income individuals.
“We’ve been hearing for years from CEOs that American corporations are suffering under a larger tax burden than their foreign competitors,” Reich writes:
This is mostly rubbish.
It’s true that the official corporate tax rate of 39.1 percent, including state and local taxes, is the highest among members of the Organization for Economic Cooperation and Development.
But the effective rate–what corporations actually pay after all deductions, tax credits, and other maneuvers–is far lower.
Last year, the Government Accountability Office, examined corporate tax returns in detail and found that in 2010, profitable corporations headquartered in the United States paid an effective federal tax rate of 13 percent on their worldwide income, 17 percent including state and local taxes. Some pay no taxes at all.
Which raises an obvious question: If it’s “mostly rubbish” that the tax burden is higher on U.S.-based companies than on those headquartered elsewhere, how is it that Walgreen stands to save all those billions by moving to Switzerland? Why are companies moving at all? Surely their accountants know the difference between the statutory and effective tax rates.
There’s an obvious problem with Reich’s argument, which is that he compares the average effective U.S. corporate tax rates only with the statutory rate, not with other countries’ effective rates. That’s a limitation of the GAO study, but the summary notes that U.S. effective tax rates “are high relative to other countries.” The summary also notes–but Reich doesn’t–that the U.S.’s average effective rate is considerably higher, 22.7%, when unprofitable companies are included in the calculation. Reich fails to mention as well that Walgreen’s effective rate is considerably higher than average–31% between 2008 and 2012, according to that Americans for Tax Fairness report.
There’s a less obvious problem, too. What Reich either doesn’t know or chooses not to tell his readers is that the U.S. corporate tax burden is unusually heavy not just because the rate is the highest in the developed world, but also because the U.S. subjects companies to double taxation. MIT’s Michelle Hanlon explained it in a Wall Street Journal op-ed last month: “The U.S. has a world-wide tax system under which profits earned abroad face U.S. taxation when brought back to America. The other G-7 countries, however, all have some form of a territorial tax system that imposes little or no tax on repatriated earnings.”
Even worse than Reich’s deceptive analysis of the problem is his idea about how to solve it. The obvious answer would be to reform America’s corporate tax system to make it competitive with other countries’ and do away with the perverse incentives to move to another country. To say Reich rejects this idea out of hand would be giving him too much credit. He doesn’t even mention it.
Reich wants revenge, not rational policy. To his very slight credit, he rejects one awful idea for retaliation: “By treaty, the U.S. government can’t (and shouldn’t) discriminate against foreign corporations offering as good if not better deals than American companies offer.” Thus a Medicare and Medicaid boycott of Walgreen’s pharmacies is off the table.
But here’s what he does want to do:
Even if there’s no way to stop U.S. corporations from shedding their U.S. identities and becoming foreign corporations, there’s no reason they should retain the privileges of U.S. citizenship. . . .
Walgreen should no longer have any say about how the U.S. government does anything. . . .
The Supreme Court’s “Citizens United” decision may have opened the floodgates to American corporate money in U.S. politics, but not to foreign corporate money in U.S. politics.
The Court didn’t turn foreign corporations into American citizens, entitled to seek to influence U.S. law and regulations.
On one point, Reich is partially correct: The Citizens United decision does not necessarily extend the same protections to foreign-based companies as to U.S.-based ones. The decision, by Justice Anthony Kennedy, left open the possibility “that the Government has a compelling interest in limiting foreign influence over our political process”–which is to say that it did not decide the question either way.
Reich does not make the case that such an interest is compelling. To our mind his argument fails even the considerably less stringent “rational basis” test. As Justice Kennedy observed in Romer v. Evans (1996), a law that is “inexplicable by anything but animus toward the class that it affects . . . lacks a rational relationship to legitimate state interests.” Reich’s conclusion is an expression of pure nativist animus: “[Walgreen] may still be the Main Street druggist, but if it’s no longer American it shouldn’t be considered a citizen on Main Street.”
Further, while it’s true that one sometimes refers colloquially to a corporation as being a “good citizen” or a “bad” one, as a legal matter the concept of American citizenship doesn’t apply. Corporations don’t vote or carry passports, in America or anywhere else. A corporation is a legal person, with legal rights and obligations, but only an individual human being–a “natural person,” in the parlance of the law–can be a citizen (or, for that matter, an alien).
As Citizens United critics typically do, Reich misstates the court’s holding in the case. It did not “open the floodgates” for “corporate money.” Corporations, regardless of where they are headquartered, are still prohibited from donating money to candidates for federal office. (So are noncitizens, except for legal resident aliens.)
What Citizens United affirmed was that corporations have the right to free expression under the First Amendment. Liberals claim to disagree with that principle, but in fact it is uncontroversial in other contexts. We’ve never heard anyone suggest that New York Times Co. v. Sullivan (1964), the landmark defamation decision, should have gone the other way because the defendant was a corporation (or, for that matter, because the expression in question was a political advertisement).
Reich is wrong to imply that free expression is among “the privileges of U.S. citizenship.” It is, instead, a right that belongs to all persons regardless of citizenship. (Perhaps Reich agrees with Justice Clarence Thomas, who has argued for a revival of the 14th Amendment’s Privileges or Immunities Clause–but we very much doubt it.)
If you sue a foreign national, or a foreign publication, for libel in a U.S. court, the defendant will have the full protection of the First Amendment. American government censorship of a foreigner’s book–say, Frenchman Thomas Piketty’s “Capital in the Twenty-First Century,” which Reich himself has praised–would violate the Constitution as surely as if the author were Mark Twain.
As for foreigners influencing American politics, where has Reich been for the past few elections? If the marketplace of ideas ever observed national boundaries, it no longer does. Commentary from all over the world is widely available on the Internet, and especially in 2004 and 2008, members of Reich’s party frequently cited foreign opinion as a reason to support their presidential nominee.
Many voters rejected the argument, especially in 2004, but we don’t recall anyone suggesting that the U.S. government should prevent the dissemination of viewpoints from outside America’s borders. Even authoritarian regimes find such suppression a challenge; in a free country it would be as futile as it is un-American.
The other thing, of course, is that accepting the first part of Reich’s argument requires you to believe that every cent of a business’ profit belongs to the government, to take away as much of it — or maybe all of it — as the government pleases. To believe that, you also have to believe that the government has a similar right to your money, including, potentially, all of it. Reich probably does believe that. No one with brains and morals believes that.
Steve Prestegard.com: The Presteblog 