Protecting Government against the American People

Protectionism does not work.  Whether the object is to protect industries, jobs, or consumers, every attempt to impose protectionist sanctions has failed.  The inevitable result, as Milton Friedman insisted, is perpetuation of uncompetitive industries, declining number and quality of jobs, and/or higher prices for consumers. The better alternative is open markets, which at the same time allow lower-cost goods to enter the U.S. and force American companies and workers to compete in the global marketplace.  That sort of competition leads to innovation of the kind that produces more and better jobs.

Now the Obama administration urges Congress to pass a new sort of protectionist measure unlike any that existed before.  But unlike the failed legislation of the past – including the Smoot-Hawley Tariff Act of 1930, which is generally credited with deepening and prolonging the Great Depression – the new measures don’t even pretend to protect workers or consumers.  Their only intent is to protect government revenues and the power of the governing class.  And what are they protecting government from?  From the aspirations of the American people to live better lives.

That was the message of Treasury Secretary Jack Lew in a letter of July 15 to congressional leaders urging restrictions on American businesses that attempt to relocate their headquarters – or change their “tax domicile,” as Lew called it.  Lew would not only prohibit the change of domicile for American companies in the future, but also make that restriction retroactive to May 2014.

The use of the phrase “tax domicile” is, in and of itself, an important clue as to the way this administration views American business.  For Secretary Lew, it seems, the primary concern is not the health of American companies or their ability to compete, expand, or create good jobs.  It is their ability to generate taxes to support greater government power.

Nowhere in his letter does Secretary Lew fully address the question of why so many American corporations are attempting to relocate their headquarters overseas.  If he had done so, he would have realized that the United States imposes the highest marginal corporate tax rate of any major developed country.  He would also have to admit that the U.S. is the only major developed country that operates under a territorial tax system, imposing double payment of taxes on profits earned abroad.

The obvious solution to the problem of corporate flight is to pass legislation reducing taxes and eliminating the territorial system of taxation.  But while Lew mentions the advisability of lowering corporate taxes, he and President Obama have made no credible effort to do so.  Given this fact, his letter of July 15 comes across as little more than an election-year stunt designed to portray Big Business as the enemy and the Obama administration as the defender of the Little Guy.  Nothing could be farther from the truth.

If the administration truly wished to lower corporate taxes, as Secretary Lew suggests in his letter, the president could simply call in Senator Reid and other Senate Democrats, demand the reduction of corporate taxes, and have done with it.  Republicans in the House would certainly go along.  But nothing of this sort has happened, nor will it ever happen with a Democrat in the White House.   

The focus of Secretary Lew’s letter to Congress is not on lowering taxes: it is on imposing further restrictions on business.  That, in a nutshell, is the reflexive response of this administration in its dealings with the business community.

Promoting legislation that would prohibit American companies from engaging in “inverse mergers” does nothing to protect jobs or expand the economy.  If passed, such legislation would actually destroy whatever competitive advantage American workers now enjoy.  If forced to continue struggling under a total federal and state tax rate averaging 41%, American companies would soon find themselves overcome by foreign competition.  How does a company required to surrender 41% of its profits, including profits already taxed abroad, compete with businesses paying 25% at most and paying nothing on overseas earnings?

Secretary Lew’s letter is not just another attack on “the rich,” however.  It is a significant escalation of this administration’s assault on capitalism.  No senior administration official in the history of our republic has ever attempted such a brazen justification of the enslavement of so many by so few.  The language of the July 15 letter betrays the arrogance of the administration’s thinking toward business and toward the American people.  As Secretary Lew writes, “[w]e should not be providing support for corporations that seek to shift their profits overseas to avoid paying their fair share of taxes.”

What is the nature of this “support”?  Is it the millions of pages of regulations – 80,462 new pages in 2013 alone – that government imposes on American firms?  Is it the environmental regulation that government inflicts on companies that wish to mine, drill, or build new industrial plants?  Secretary Lew is delusional if he thinks that government is doing American corporations a favor.  In fact, government is doing all it can to move American companies overseas, and now that they are complying, it resorts to strong-arm tactics to keep them here.

Apparently, Secretary Lew actually believes that it is “unpatriotic” for American businesses to attempt to shield their profits from the clutches of government.  He would, in effect, seize those profits and redistribute them to the welfare class and to the corporate cronies with whom the administration has done business for nearly six years.

In other words, American businesses are supposed to lie down and play dead while the Obama administration strips them of their profits, places them at a disadvantage to foreign competitors, and drives them into bankruptcy.  At that point, Secretary Lew can accuse them of being too big to fail, place them in the hands of government directors, and assure that in the future they operate as junior partners of government.

Secretary Lew, let free markets operate as they were intended to do.  Allow American businesses relocate to wherever they can operate most efficiently.  And if you want to do the American people a favor, slash the size of government; reduce the millions of pages of regulation to a few hundred, or none at all; and cut corporate and personal taxes to the point where America will once again become a favored location of capital investment.      

Jeffrey Folks is the author of many books on American politics and culture, including Heartland of the Imagination (2011).

Protectionism does not work.  Whether the object is to protect industries, jobs, or consumers, every attempt to impose protectionist sanctions has failed.  The inevitable result, as Milton Friedman insisted, is perpetuation of uncompetitive industries, declining number and quality of jobs, and/or higher prices for consumers. The better alternative is open markets, which at the same time allow lower-cost goods to enter the U.S. and force American companies and workers to compete in the global marketplace.  That sort of competition leads to innovation of the kind that produces more and better jobs.

Now the Obama administration urges Congress to pass a new sort of protectionist measure unlike any that existed before.  But unlike the failed legislation of the past – including the Smoot-Hawley Tariff Act of 1930, which is generally credited with deepening and prolonging the Great Depression – the new measures don’t even pretend to protect workers or consumers.  Their only intent is to protect government revenues and the power of the governing class.  And what are they protecting government from?  From the aspirations of the American people to live better lives.

That was the message of Treasury Secretary Jack Lew in a letter of July 15 to congressional leaders urging restrictions on American businesses that attempt to relocate their headquarters – or change their “tax domicile,” as Lew called it.  Lew would not only prohibit the change of domicile for American companies in the future, but also make that restriction retroactive to May 2014.

The use of the phrase “tax domicile” is, in and of itself, an important clue as to the way this administration views American business.  For Secretary Lew, it seems, the primary concern is not the health of American companies or their ability to compete, expand, or create good jobs.  It is their ability to generate taxes to support greater government power.

Nowhere in his letter does Secretary Lew fully address the question of why so many American corporations are attempting to relocate their headquarters overseas.  If he had done so, he would have realized that the United States imposes the highest marginal corporate tax rate of any major developed country.  He would also have to admit that the U.S. is the only major developed country that operates under a territorial tax system, imposing double payment of taxes on profits earned abroad.

The obvious solution to the problem of corporate flight is to pass legislation reducing taxes and eliminating the territorial system of taxation.  But while Lew mentions the advisability of lowering corporate taxes, he and President Obama have made no credible effort to do so.  Given this fact, his letter of July 15 comes across as little more than an election-year stunt designed to portray Big Business as the enemy and the Obama administration as the defender of the Little Guy.  Nothing could be farther from the truth.

If the administration truly wished to lower corporate taxes, as Secretary Lew suggests in his letter, the president could simply call in Senator Reid and other Senate Democrats, demand the reduction of corporate taxes, and have done with it.  Republicans in the House would certainly go along.  But nothing of this sort has happened, nor will it ever happen with a Democrat in the White House.   

The focus of Secretary Lew’s letter to Congress is not on lowering taxes: it is on imposing further restrictions on business.  That, in a nutshell, is the reflexive response of this administration in its dealings with the business community.

Promoting legislation that would prohibit American companies from engaging in “inverse mergers” does nothing to protect jobs or expand the economy.  If passed, such legislation would actually destroy whatever competitive advantage American workers now enjoy.  If forced to continue struggling under a total federal and state tax rate averaging 41%, American companies would soon find themselves overcome by foreign competition.  How does a company required to surrender 41% of its profits, including profits already taxed abroad, compete with businesses paying 25% at most and paying nothing on overseas earnings?

Secretary Lew’s letter is not just another attack on “the rich,” however.  It is a significant escalation of this administration’s assault on capitalism.  No senior administration official in the history of our republic has ever attempted such a brazen justification of the enslavement of so many by so few.  The language of the July 15 letter betrays the arrogance of the administration’s thinking toward business and toward the American people.  As Secretary Lew writes, “[w]e should not be providing support for corporations that seek to shift their profits overseas to avoid paying their fair share of taxes.”

What is the nature of this “support”?  Is it the millions of pages of regulations – 80,462 new pages in 2013 alone – that government imposes on American firms?  Is it the environmental regulation that government inflicts on companies that wish to mine, drill, or build new industrial plants?  Secretary Lew is delusional if he thinks that government is doing American corporations a favor.  In fact, government is doing all it can to move American companies overseas, and now that they are complying, it resorts to strong-arm tactics to keep them here.

Apparently, Secretary Lew actually believes that it is “unpatriotic” for American businesses to attempt to shield their profits from the clutches of government.  He would, in effect, seize those profits and redistribute them to the welfare class and to the corporate cronies with whom the administration has done business for nearly six years.

In other words, American businesses are supposed to lie down and play dead while the Obama administration strips them of their profits, places them at a disadvantage to foreign competitors, and drives them into bankruptcy.  At that point, Secretary Lew can accuse them of being too big to fail, place them in the hands of government directors, and assure that in the future they operate as junior partners of government.

Secretary Lew, let free markets operate as they were intended to do.  Allow American businesses relocate to wherever they can operate most efficiently.  And if you want to do the American people a favor, slash the size of government; reduce the millions of pages of regulation to a few hundred, or none at all; and cut corporate and personal taxes to the point where America will once again become a favored location of capital investment.      

Jeffrey Folks is the author of many books on American politics and culture, including Heartland of the Imagination (2011).

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