The latest government-created and media-supported public outrage is the "inversion" process of re-incorporating a company overseas to reduce the liability for income earned abroad.
Is this an unusual tactic? Sure it is. Is it a risky public relations move? Thanks to the economically illiterate media and a public more interested in The Duggars than economics, yes inversion is a risky public relations move. Is there anything unethical or immoral about the process? Absolutely not. In fact, not minimizing tax burdens and paying more than required by law is irresponsible leadership on the part of any for-profit company. In the private sector, companies have been using the tax code to their best advantage for decades. Just in case anyone is unaware, companies keep two sets of books for recording their performance - one for Wall Street and one for the IRS...which is perfectly legal and good business. Firms want as much revenue and profit as possible to report to WallStreet and a little as possible to report to the IRS. Depreciation is a great example of this reality at work. In the financial books reported to Wall Street, assets are generally depreciated using a 5-year straight line method, meaning the "cost" recognized by the company in using up the asset is fixed each year at 1/5th of the purchase price and is tallied as "expense" for that year. In the IRS books, the company uses the Modified Accelerated Costs Recovery System (MACRS) established by the government to allow companies, for tax reporting purposes, to depreciate the same asset faster in the first 3 years of its life. Therefore the company can increase their "costs" and reduce their tax liability...and also will have incentive to replace the asset with new assets sooner rather than later.
Does this sound convoluted? It is, but we are just getting started. The 2013 US Tax Code was over 73,000 pages long. Therefore businesses and individuals have to comply with 73,000 pages of regulations. However, there are also goodies and incentives in the Tax Code as the government tries to manipulate and incent specific behavior it deems laudable. Often old incentives and manipulations overlap with others or become outdated and are expanded rather than replaced...and we end up with 73,000 pages of tax code.
Whether we like it or not, the tax code is the law of the land. It is the rules of the road for business. Businesses don't write tax code, they pay lobbyists to plead their interests to congress, and then after the code is published every year, they figure out how to leverage the new rules to their best advantage. Guess what? Inversion is to the best advantage of many corporations and they are and should be inverting as quickly as they possibly can. They don't write the rules, they have to live with them, so if the government is telling them to invert through the rules of the tax road, then companies will restructure themselves and reformulate overseas. None of this happens without a perverse, over reaching, and exhausting tax code.
The delightful irony is government officials sternly wagging their fingers at tele-prompters scolding US companies for doing something the government has essentially directed them to do through tax policy. Obama and his leftwing friends had two years with a veto-proof majority in congress. If incentives for inversion were such bad tax policy, they should have fixed it. They didn't, or more likely government was outsmarted once again by the private sector. The very likely reality is that there was no plan to incent inversion, rather inversion is a side effect of some other attempt to manipulate behavior through the tax code. I love it when government smarties with Ivy League diplomas hanging in their offices come up with their newest social do-gooder scheme only to have it blow up in their faces when a highly motivated, very efficient, and ruthlessly effective private sector finds unimagined ways to implement the new rules to their advantage dreaming up outcomes that are completely foreign and contrary to the ivory-towered bureaucrats...leaving them both bewildered and seething that they have been foiled again by the market economy and the private sector.
Inversion is here to stay as it should be until the rules and incentives are changed. The best solution for the country and the economy would be to scrap the whole shit house full of 73,000 pages of tax regulations and implement a flat or value added tax from which no one or no corporation escapes, but under which we could all fill out our tax returns in 10 minutes on New Year's Day while watch bowl games. However, this would deprive the Ivy-League, meddling, do-gooders of something to, so I assume we will top 80,000 pages of tax regulations soon and more and more companies will re-incorporate overseas.
