These past five years have been very good for Wall Street and administration cronies, donors and other campaign benefactors. The revolving door between corporations and government has never spun faster than under President Obama, who once promised he wouldn’t hire lobbyists, and then stuffed his Cabinet and subdepartments with more than a hundred of them. Mr. Obama decided Thursday to get back to the bashing business, and just in time. The November elections are barely 90 days away.
Between $35,000-a-plate Hollywood fundraisers, the president brought the words on his teleprompter to life with a stirring plea for “economic patriotism.” Corporations shouldn’t seek to minimize their tax burden by moving overseas, he said. “I don’t care if it’s legal, it’s wrong . You don’t get to choose the tax rate you pay. These companies shouldn’t, either.” This was from a man who found enough deductions to pay at a lower effective tax rate, 20.5 percent, than his personal secretary.
If paying corporate taxes defines patriotism, American businesses are bleeding red, white and blue. At 40 percent, companies based in the United States pay the highest corporate-tax rate in the developed world. Last year, they paid $312 billion to the IRS (a 10 percent increase from the previous year), not counting federal payroll, estate, unemployment and excise taxes.
According to KPMG, the accounting firm, the global tax-rate average is 23.7 percent — about 16 points lower than the U.S. rate. Businesses would be smarter to set up shop in Mr. Obama’s old stamping grounds in Indonesia, which has a 25 percent rate, or Afghanistan, where it’s 20 percent. Honduras and Guatemala are more friendly to business, too.
A CEO has a duty to his shareholders to reinvest profits in expansion, investment and research for the company, not to expand the federal government. It’s no less patriotic for a CEO to take all available steps to protect his company’s income from the tax man, just like Mr. Obama does.
The way to keep corporations, with their payrolls and prosperity, in the United States is to make the tax system competitive again. Slashing the corporate-tax rate to the amount paid by the average Swiss company, 22.4 percent, would, according to a recent study by S&P Capital IQ, create 10 million jobs.
That’s a lot more than the jobs “created” by the president’s $1 trillion stimulus bill that was supposed to lead to Recovery Summer. Instead, it delivered dog days of malaise.
Administration economists say the only way to pay for the president’s expanding welfare and entitlement state is for the tax rate to continue to rise. At some point, businessmen will realize that Mr. Obama needs them more than they need him.
In the war year of 1943, Franklin D. Roosevelt played the patriotism card, too. Congress refused to enact a 100 percent top rate on “the rich,” so FDR decided to go it alone. “I issued an Executive Order,” Mr. Roosevelt explained, “in which, among other things, it was provided that in order to correct gross inequities and to provide for greater equality in contributing to the war effort, no salary should be authorized to the extent that it exceeds $25,000 net after the payment of taxes.” That’s about $345,000 in today’s dollars. Republicans ultimately blocked the tax using an amendment to a debt-ceiling increase.
Unlike FDR, Mr. Obama can’t hang his call for patriotic tax increases on a world war. He would have more success getting a bill through Congress if he proposed closing some of the “tax loopholes” in exchange for a serious reduction in the overall rate.