Commonsense Conservative For Ohio


CNBC: Why Obama's 'economic patriotism' is bunk

By Ben White | July 25, 2014

Washington is as cynical a place as you will find on earth but President Barack Obama's latest attack on corporate "deserters" in a speech in Los Angeles and an interview with CNBC's Steve Liesman sets a new bar.

Obama brought the full weight of the Oval Office to the issue of U.S. companies acquiring sizable stakes in foreign firms in order to reduce their U.S. tax burden, saying doing so is "neither fair nor is it something that's going to be good for the country over the long-term..."

...The fact of the matter, however, is that the administration has never pushed hard for corporate tax reform proposals put forward after many years of hard work by former Senate Finance Committee chairman Max Baucus, whose prize for getting stiffed by the White House on his main objective—fixing an antiquated and anti-competitive U.S. tax code—was an ambassadorship to China (a posting that puzzled the Chinese)...

...So Obama's move should be seen as mostly political. It sounds good to oppose U.S. companies, lately many drug makers, using inversions to nominally relocate abroad. And indeed inversions are an unfortunate result of Washington's inability to fix the tax system. But in most cases they are perfectly logical moves for companies that can find both good foreign acquisition targets and who face tax rates that reduce their ability to compete with foreign firms.

Ohio GOP Sen. Rob Portman, a possible 2016 presidential contender, made this case on CNBC's "Squawk Box" on Friday morning, arguing that you cannot close the inversion "loophole" because companies will just find other ways to lower their U.S. tax burden that would be even worse for jobs and the American economy.

"You can't really close the loophole because people are going to find other ways to become foreign corporations, and it would be terrible tax policy," Portman said. "We've got to reform the tax code. We've got to get at the underlying problem. If you make it even more disadvantageous to be an American company what is going to happen is you are going to see more companies become foreign companies."

And he rejected the "deserters" line: "The problem is Washington. In a way these companies are economic refugees."

The problem with targeting inversion alone is that if you take that tool out of the corporate arsenal outside the context of lowering the overall rate while eliminating loopholes you almost certainly wind up making U.S. companies less globally competitive and thus less likely to hire both at home and abroad. It also encourages foreign takeovers of U.S. firms, as Portman discussed.

But the White House likely knows it won't have to worry about the impact of actual legislation because while there is uniform agreement that inversions are a bad thing—and even some bipartisan interest in stand-alone bills—there is no agreement on how to address the problem.

So, in the meantime, the White House can bask in the glow of the "economic patriotism" without actually doing anything to make the U.S. a more competitive and hospitable place to do business.

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