Upon Burger King’s announcement that it will be merging with Tim Hortons and subsequently relocating to Canada, the dialogue of economic patriotism and evading higher American tax rates entered the public’s psyche again.
Corporations ask for the support of the American people, economy and workers; however, they do not feel obliged to return this same support. I’m asking for American corporations to remain loyal to the nation that allows them to reap their profits.
The term “economic patriotism” has its roots in the Reagan administration, and its modern-day understanding is related to the exodus of American corporations to foreign countries in order to evade high taxes. The move affects the American workers and our economy; thus, corporations that act in this manner are “economically unpatriotic.”
Although an economist would argue that the move is logical for any corporation to maximize its profits, there are inevitable consequences of this that affect the American economy. The cynic in all of us would ask, “Why is economic patriotism necessary, and why does it matter?” The tax base these corporations are withdrawing from contributes to public education, roads and health care, among other social programs. We need corporate taxes to offset these costs and keep taxes on the middle class down.
Americans should not be ignorant of the fact that the corporate tax rate in the U.S. remains one of the highest in the world; however, in times of need a corporation should not jump ship and denounce American citizenship. A reformation of our complex tax code is imminent and promises to bring some relief to American corporations that have remained.
“Let’s stop rewarding companies that ship jobs overseas; give tax breaks to companies that are bringing jobs back to the United States,” President Barack Obama said in regard to economic patriotism.
A rare bipartisan effort has ensued to close the tax loophole and reform our tax code, which has led corporations to abandon the American economy. The means in doing so vary greatly. The primary culprit for infiltrating this legal practice is tax inversion — an American corporation buying a foreign company and moving their headquarters to the foreign country with a lower tax rate, as in the case of Burger King. Over 47 corporations in the past 10 years have used the practice to avoid high taxes in America, compared to a mere 29 in the two preceding decades.
Walgreens is an example of a corporation that decided to remain loyal to the American people, and investors have punished them severely for remaining. If inversion became illegal, as U.S. Treasury Secretary Jack Lew has called for, then it would help our economic system, while also avoiding the punishment of U.S. companies that choose not to leave.
Forbes contributor Mike Patton said if the trend of tax inversion continues, “it could lead to a weakened labor market as there would be fewer jobs available.” These now “foreign” corporations not only have access to Wall Street and our market as a whole, but also the ability to subsequently harm our federal tax revenue. Former American corporations thrive by profiting off Americans, while having no obligation to the nation that gave them the opportunity of the American Dream.
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