A few weeks ago, it was quite revealing -- but not surprising -- to hear Treasury Secretary Jacob Lew imply that corporate America should willingly pay the highest corporate-tax rates in the world as part of its "patriotic" duty. This kind of discourse demonstrates a profound misunderstanding of capitalism, which is an important component of American exceptionalism.
In our system, people do not go into business, in many cases risking everything they have and more, in order to support the government. They obviously take those kinds of risks to make money. Instead of chastising American businesses for making financially prudent overseas investments, a wise and understanding government would be creating a domestic environment that is conducive to investment, innovation and growth, reducing the appeal of foreign explorations. A fair tax structure and a reduction in unnecessary regulations would go a long way toward establishing this environment.
Recently, President Obama indicated displeasure with the large and very successful medical-device company Medtronic, which has made public plans to acquire the Dublin-based company Covidien. This would result in one of the largest tax-inversion deals in history. Medtronic would move its headquarters from Minnesota to Ireland, relinquishing some of its American identity but reaping massive tax benefits because they would be taxed at the Irish corporate rate rather than the American corporate rate.
In a recent West Coast speech, Obama said companies doing such things are "technically renouncing their U.S. citizenship." He added, referring to such companies, "You don't get to pick which tax rate you pay." The fact is, they do get to pick their rate, because they are mobile and not yet under the complete control of a tyrannical government.
The days of an insular business environment are long gone from America, and we must recognize that we are players on the global stage. This means successful businesses will take advantage of conditions anywhere in the world that will promote their growth and value to shareholders. Instead of patriotism being defined as unthinking devotion to governmental tax edicts, perhaps it is better described as using one's talents and resources to bring strength and prosperity to our land through the successful utilization of advantages found worldwide. Our tax and regulatory policies should be aimed at helping companies achieve this latter definition.
Many American companies have social-responsibility committees that are very popular with socially conscious directors. They commit time, effort and money to enhancing the quality of life in their local communities, as well as nationally and globally. By not punishing these companies with corporate-tax rates that no other country in the world sees as reasonable, we not only contribute to their financial well-being, but we also greatly enhance their ability to have a positive effect on social problems here in the United States.
There is absolutely no need for animosity between the government and business. When businesses are successful, the reservoirs from which taxes are paid are much larger, resulting in more money for the government even though tax rates would be lower. If we enact policies that allow American companies to bring back hundreds of billions of dollars in corporate profits to our country without punitive taxation, the upside would be considerably greater than any negative consequences. This is not complex economic theory; it's common sense.
As the president and Congress consider enacting regulations to limit or eliminate future inversion deals, I hope they take the time to talk to a wide spectrum of business leaders about ways to create a fertile and friendly atmosphere for innovation and growth. It will require more than just talk to persuade American companies to stay or return to our shores. Instead of just talking about fixing our taxation woes, we need to just do it. And I hope grateful companies will feel an obligation to do even more to contribute to the well-being of the citizens of our nation.