Score another win for Bernie Sanders.
This time it did not come in the form of a primary or a caucus. He didn’t even get any delegates as a result.
But when the U.S. Department of the Treasury short-circuited a much-anticipated merger between two corporate giants, it was exactly the painful blow to big business that the socialist senator from Vermont has been arguing for in his passionate rhetoric of economic populism.
Here’s what happened and why it matters.
Last Monday, the Treasury introduced its latest set of regulations aimed at stopping U.S. companies fleeing America’s absurdly high corporate taxes in favor of countries where they would be better treated. The poster child for this was drug company Pfizer, which had aimed to reincorporate in Ireland by merging with Dublin-based Allergan, also a pharmaceutical company.
The move would have made sense. Ireland’s corporate tax rate is a mere 12.5 percent, while that of the U.S. is 35 percent, which when combined with state taxes comes to 39 percent. Even Britain and Canada tax at lower rates, 20 percent and 26.5 percent, respectively.
A lot of wealth was destroyed by the Treasury that day, and the blame should fall, at least partly, at the feet of three presidential hopefuls, Sanders, Hillary Clinton, and Donald Trump, who each criticized the now-dead deal. Sanders even went as far as to write Treasury Secretary Jack Lew a letter specifically asking for Pfizer’s plans to be thwarted.
It also shouldn’t be a surprise that Lew acted on the Sanders prompt, given that his boss, President Obama, had already described these so-called tax inversions as “unpatriotic” and “most insidious,” and reflects his administration’s ongoing war with corporate America.
What’s notable is that while such inversion deals would reduce taxes for the corporation, they aren’t driven by the desire to find cheaper labor, just lower taxes. It’s also notable that corporate relocation of factories to countries where labor is less expensive is rarely criticized by this administration.
Treasury’s targeting of the Pfizer-Allergan merger isn’t an isolated incident. Rather it is just the latest move in the Obama administration’s savage anti-business war. On the tax inversion front, Treasury also nixed a 2014 attempt by Chicago-based drug company AbbVie to buy Irish company Shire and relocate headquarters to Dublin.
Other examples of this behavior include the Federal Trade Commission’s challenge of the Staples-Office Depot deal; the extra scrutinizing of the Aetna-Humana and Anthem-Cigna mergers as well as the Anheuser-Busch acquisition of SAB Miller. Separately, The Department of Justice has already filed a lawsuit to block Halliburton’s acquisition of Baker Hughes. You get the idea.
This time around, Treasury made its new regulations retroactive, changing the rules after the proposed merger had been legally constructed and announced. How can companies continue to confidently operate and invest in the U.S. when such uncertainty exists that the rule of law can be changed on the whim of the president?
High U.S. tax rates, which certainly encourage U.S. corporations to relocate overseas, are just part of the problem which puts American companies at a distinct disadvantage against foreign competitors.
Why? Such punitive taxes lower returns to shareholders. It therefore shouldn’t be too surprising that The Economist magazine estimated that up to nine U.S. corporations would try to move for tax reasons this year.
On top of that the United States has a weird idea of how taxes should work. It is one of the few countries that force its companies to pay tax on worldwide income. For instance, a U.S. corporation pays tax in Germany on its income generated there, and then again when the profits are repatriated to the U.S.
Elsewhere, corporate tax is paid only where the income is earned. It would be a double taxation, if U.S. companies were stupid enough to bring the cash home. Instead they leave the money abroad – more than $2 trillion of it.
That’s more than 10 percent of GDP. Imagine what that cash could be used for here in the United States if only the Treasury switched to a more sensible tax regime of taxing by jurisdiction.
These things matter because they are what drive the economy and hence job creation. The current presidential candidates have very different ideas about how they want to govern the U.S. for the four years starting 2017.
Some ideas, like punitive taxes will continue to crush economic growth. Whereas others, like streamlining corporate taxes, will boost it.
Think about that when you go to the polls this fall.
Tony Sayegh is a Republican Strategist, National Political Correspondent for Talk Radio News Service and a Fox News contributor. You can follow him on Twitter @tony4ny and e-mail him at firstname.lastname@example.org