VIDEO: My Take on Corporate Inversion

This is the first YouTube video I have ever made! I promise to improve the quality in the future, but it is something I have been dying to do for a long time.

I talk about corporate inversion. I think businesses should be able to locate wherever they choose to as long as it doesn’t involve violating property rights. The government would be wrong to react by penalizing these companies. It should understand why the companies are doing this in the first place, and then act accordingly.

Thanks for watching!

Corporations Using Inversion to Escape U.S. Taxation

The Obama administration is cracking down on corporations who engage in a practice called “inversion.” Inversion is a process in which a corporation in one country purchases a smaller corporation headquartered in a different country, and then declares that country to be the new location. Burger King recently made the news after their decision to purchase Tim Hortons and relocate to Canada.[1]

According to a CNN report, 47 American corporations have undergone inversion in the last decade. That is nearly five each year.[2]

President Obama and many policymakers are upset about the legality of this maneuver. They believe that a corporation should not be allowed to reap American benefits while escaping American taxation.

The president said, “You shouldn’t get to call yourself an American company only when you want a handout from American taxpayers.”[3]

Meanwhile, his secretary of the Treasury, Jacob Lew, called for a “new economic patriotism” and urged congress to pass legislation to prevent inversion from happening.[4]

While the battle for legislation rages on, it might be useful to take a step back and ask some questions.

What is inversion, and why is it happening?

As already stated, inversion is a process in which an American corporation purchases a smaller corporation headquartered in a different country, and then declares that country as its new location.

Why would a corporation do this? What is the incentive?

For corporations, inversion provides an efficient way to escape heavy taxation inside of the U.S. by relocating to lower tax countries such as Canada or Ireland. After all, the U.S. currently has the highest effective corporate income tax rate in the developed world, at 35.3%.

It should be no surprise that a 10.1% effective rate in Ireland or an 18.6% rate in Canada is pulling businesses away from the 35.3% rate in America. The only mystery is why it is taking so long.[5]

From a corporation’s viewpoint, inversion is a beneficial process. With less money taken from them in taxes, more money is available to take care of business activities. However, the policymakers have a justified reason to fear this practice.

In the short run, the loss of American-born companies means the government will lose revenue to fund programs, and will be obliged to receive extra revenue from other sources in the form of higher taxes or more borrowing and higher deficits.

In the long run, if the U.S. continues its course of heavy taxation and regulation, less business investment in America will lead to lower levels of production. This means fewer jobs than otherwise would exist if the American economic system was more competitive with many other countries.

Since inversion poses significant problems to the U.S. economy, what is the best way to solve it?

The answer to this question depends on the incentives facing the person responsible for answering it.

Many impartial viewers, who have no election at stake, could glance at the data and come to a solution relatively quickly. After all, it appears that corporations who move out of the U.S. do so because they desire to be located in a country which will not tax them as much.[6] Therefore, the impartial viewer is likely to conclude that cutting tax rates might not be a bad place to start.

For proof, the impartial viewer can say that the 34 member countries of the Organization for Economic Co-operation and Development (OECD) together have an average effective corporate income tax rate of 19.6%. The U.S. effective rate is 35.3%. If companies can find lower prices elsewhere, why would they not take them?[7]

The situation is different, however, when the policymaker is considering how to solve inversion. His major priority is to get votes. At the present time, proposing “tax cuts for the rich” is not a recipe for votes. Advocating for a “fair share,” however, is politically profitable.

To this point, the legislative reaction appears to consist of passing legislation to prevent firms from engaging in inversion. This is a little like a university solving its dropout problem by preventing students from transferring to another school. It ignores the underlying causes, and is likely only to spread even more problems.

Consider secretary of the Treasury Jacob Lew’s reaction. His solution called for a “new economic patriotism” to oblige companies to stay here based on loyalty to the U.S.[8]

It shouldn’t take a sophisticated Harvard professor to point out the fact that patriotism is impertinent to running a business. Competition, on the other hand, is vitally important for business decisions.

If Lew is going to promote policy based on something that doesn’t exist—patriotism in business—while utterly ignoring a prime factor contributing to the problem—competition among tax rates—then no problem will be solved, and more problems are likely to come up which will take another round of brilliant legislative action.

In addition, what is so admirable about patriotism (loyalty to country) in the first place? In the 1770s those people who today would be considered patriotic were then called Tories, and they were tarred and feathered.

Lew is not the only policymaker interested in preventing firms from inverting. President Obama remarked that companies shouldn’t be allowed to call themselves American only when they want handouts from American taxpayers.

Again, it shouldn’t take a Harvard professor to see that the best way to solve the problem of taxpayer funded bailouts would be to not have taxpayer funded bailouts. This is the crazy notion that businesses should rise and fall on merit, not political connection.

President Obama also condemned the practice because he doesn’t like how the loss of tax revenue sticks his beloved middle-class taxpayers with the tab.

Since the president is so concerned with the welfare of the middle-class and poor, he might come to the conclusion that raising taxes on anybody changes behavior, especially among the people who can afford to move their money all over the world to escape it. If he came to this conclusion, he might realize that his desires to raise taxes on “the rich” and to add more regulation-heavy federal programs have negative consequences which harm others.

The fundamental issue with inversion resides in discovering the source of the problem. It seems straight-forward that tax competitiveness in other countries is leading companies away from the U.S.

Carl Menger, an influential economist who helped found the Austrian School of Economic thought, said that “All things are subject to the law of cause and effect,” and that this law’s growing recognition is closely tied with human progress.

The concept of countries with high tax rates driving corporations away to countries with low tax rates seems like a plausible cause and effect situation. The common sense solution would be to cut tax rates down to more competitive levels, which would eliminate the incentive for corporations to leave the U.S. in the first place.

However, fashionable slogans such as “corporate greed” and the rich “paying their fair share” are politically expedient, and often win more support than proposals for tax cuts.



Remarks on Emma Watson’s UN Speech

Emma Watson delivered a speech to the UN on September 21. She explained that she is eager to end gender inequality, that it is both a male and female issue, and that she has launched a campaign to end it.

Before my remarks on her speech, I would like to say that I am not addressing the wider movement of feminism. My observations only pertain to the contents of Watson’s speech.

In evaluating the entire speech, one major thing that came to mind was Watson’s tendency to speak in collective terms. For example, she said that she thinks it is right that “women” are afforded the same respect as “men.”

Thinking in these terms is dangerous, because it allows her to evade reality by comparing two entities which, as such, do not exist: “men” and “women” are only classifications. They have no characteristics. Therefore, she is able to ascribe any characteristics that she wants, essentially setting up a straw-man to attack.

For example, do “women” deserve the same respect as “men”? To answer this question, we need to define respect. Respect is an attitude we have towards somebody who has integrity. But integrity is the result of a deliberate, conscious behavior of ethical standards. Respect is only given to somebody when the evaluator thinks that the person is doing the right thing. It is not “afforded” to anybody, especially merely on the basis of gender. That is, people are not respected because they are a “man,” but because they are a good person.

The point here is that Watson gets away with this misleading statement—creating the impression that “men” are respected and “women” are exploited—by speaking in terms of collective categories instead of individual characteristics.

Another slick thing Watson does is throw out heart-tugging words like “equality” and “rights” without defining them. Since these words mean different things to different people, her assumptions are taken for granted without scrutiny.

For example, I view the concept of “rights” as defining the proper social relationships between people. I have a right to my life, and you have a right to your life. Neither of us is allowed to violate each other’s right to live as we please. Properly, we can only deal with each other based on consent. My version of rights has nothing to say about having things by right (such as education, respect, a house, etc): only that you have the right to pursue and earn these things.

Regarding equality, I believe the only form that is possible between humans is that of equal rights. In this sense, all individuals are endowed with certain inalienable rights; no individual has more rights than another, nor does any individual have any less rights than another. Unlike fingerprints, all rights are equal. Also, there are no group rights, such as “women’s’ rights,” “men’s’ rights,” “blacks’ rights,” “whites’ rights,” etc.

Watson, however, appears to view rights differently than I do. She seems to think that people have a right to anything that is beneficial in life, such as respect. I have concluded from her speech that her fight for gender equality has nothing to do with equality under the law, but with equal perceptions between genders, i.e., pretending no differences exist between boys and girls.

What makes me say this?

Watson gave a brief list of life events which motivated her to become a feminist, or fight for gender equality:

  1. The first event: She was called bossy at age 8 for wanting to direct plays, and boys were not called bossy. Notice, her frustration is not a factor of the law prohibiting her to direct plays on basis of gender. Instead, the source of her frustration is about her being perceived differently from the boys. Thus, the equality she wants is equal perception. If Watson would prefer being called a “little shit,” as were us boys in little league, than she’ll have to let us know. More fundamentally, by complaining about being called bossy when the other boys weren’t, Watson is trying to illuminate a reality which doesn’t exist: that girls are the only gender who face adversity.
  2. The second event: She was sexualized in the media at age 14. Sine I have no idea what this experience feels like, I will not comment.
  3. The third event: At age 15, her friends began dropping out of sports because they didn’t want to appear to be masculine. There’s a lot to critique in this statement. First, again, her emphasis on equality is based on perception, or this time appearance. She isn’t upset that laws are written prohibiting girls from playing sports. What she wants is for people to regard male athletes as no different from female athletes. But since there is a difference, her equality requires people to substitute feelings for knowledge. After all, she is not upset about any prohibitions set on female athletes, but on how some people think about female athletes. Furthermore, her suggestion that females opt out of athletics to protect their image is hardly a gender-wide trend. Many guys find athletic girls to be attractive. Many girls who play sports are not regarded as “masculine,” but are respected for being good athletes. Many girls, who decide not to play, do so only because the time spent on the sport is not worth the time that could be spent doing other things.
  4. The fourth event: Her male friends don’t want to express their feelings, because they will be perceived as weak. Again, the emphasis for gender equality is on perception, not rights. The right to express feelings is not in danger. Expressing feelings is always the responsibility of the individual who has feelings to express. I have feelings. I usually choose not to express them. I don’t do this out of fear of being called weak. I just think it would be a waste of time. I could walk around crying all day, telling people I miss my mother, but I don’t. I’m not sure about her male friends, but my feelings are transient. They come and go. I move on. No big deal.

If you watch Watson’s speech, be on the lookout for undefined words such as “equality” and “rights.” Watch out for her making generalizations on collective groups, instead of looking at individual characteristics.

It should be clear by now about why I disagree with Watson. I think the only worthy quest for equality is in the field of rights. She wants people to be perceived and treated the same. Since everybody is different, treating them as if they were the same would be destructive. It would mean substituting desires for facts; equality for merit; it would mean the boy who earned all A’s could not be regarded as smarter than the girl who didn’t; it would mean the talented baseball player could not be considered an All-Star, because it would hurt the feelings of the player who was not as good.

Therefore, when Watson says that no country has achieved gender equality, she is correct. Nor will any country ever achieve gender equality according to her standards.

Income Inequality–More to the Story

Mark Twain said, “There are three kinds of lies: lies, damned lies, and statistics.”

In the field of economics, all sorts of clever statistical methods can rearrange data according to a specific world view. Sometimes statistics can be arranged so that two opposite, contradicting conclusions come to fruition.

Robert Reich was Bill Clinton’s secretary of Labor, and is one of the more outspoken critics of income inequality in the United States.

He often makes a compelling case to fear the rise in income inequality. Most, if not all, of the statistics he presents would be strong enough to convince an economic novice that Reich’s solutions need to be implemented. But a thorough look at the facts and a questioning of his assumptions helps to poke a few holes in the balloon. If anything, it should clarify to people that Reich is not presenting the entire story.

For example, one reason why Reich would like to see taxes raised on “the rich,” is because the “top 1 percent” is taking in more than 20 percent of total income. He says this is the largest share in almost a century. Therefore, if the rich are getting more and more, then the poor and middle class are getting less and less.

But comparing statistical categories over time is misleading. It leaves out context. Reich’s observations leave the impression that an esoteric group at the top, almost like a club, is enriching themselves at the expense of less sophisticated people, year after year.

When the actual people in the “top 1 percent” are the focal point, versus just the category, a new story emerges. Between the years of 1999 and 2007, half of the people reporting millionaire tax returns only did so for one year. Only 6 percent consistently reported millionaire incomes for nine years, meaning millionaire status was transient.[1]

The same is true for the “super rich,” or the top 400 taxpayers. Over a 15 year period, from 1992 to 2006, there were 3,305 taxpayers who made enough income to be included in this category. Seventy-three percent made it for only one year. Only 15 percent made it more than twice.[2] Additionally, between the years 1996 and 2005 nearly one-half of the taxpayers in the top one percent saw their incomes go down.[3]

People can say that “the rich are getting richer,” but many of the people who were rich saw their incomes go down.

When the fate of the actual people in the category is studied, the conclusion can be different than when categories are examined. The “group at the top” vision slightly evaporates, as most people don’t consistently stay at the top.

Another shortfall of statistical groups is the actual inequality between groups. For example, economists can examine the inequality between “the rich” and “the poor,” but they are not comparing equal things. The richest fifth (20 percent) of American households had nearly six times as many full-time year-round workers than the poorest fifth (20 percent) in 2000. There were 25 million more people in the top 20 percent than in the bottom 20 percent. Even the top 5 percent had more heads of household who worked full-time for 50 weeks or more than the bottom 20 percent.[4]

Not only are there more workers in the actual group of “the rich,” there also is a tendency of each rich household to have more income contributors. For example, in 2009, 140 million tax returns were filed in the United States. Among those 140 million tax returns, just 40 percent represented married couples. On the other hand, 73 percent of families with income above $200,000 that year had two or more earners.[5]

Strictly looking at statistical categories leaves the impression of “society” spreading “inequities.” This misses important and relevant variables which can partly explain why there is inequality of incomes in the first place. It should come as no surprise that families with more people earning incomes will be much higher on the income ladder than families with fewer earners. This remains unseen when only categories are studied.

The inequality alarmists tend to speak in bromides such as “the rich have taken more and more, leaving the rest of us to compete for smaller scraps.” If this is to suggest that living standards have declined since the latter part of the 20th century, then it is not true. For example, consumption expenditures per person have been consistently rising since 1960.[6] Real disposable income per capita is up 84.2 percent since January 1980.[7] By 2003, 76 percent of poor households had air conditioning; only 36 percent of the entire population had that 30 years earlier. Nearly three out of every four poor household owned a car in 2003, and 30 percent owned two or more. Seventy-three percent owned a microwave, which less than one percent could say in 1971.[8] Finally, the poverty rate among Americans in 2012 was 15 percent. Among full-time year-round workers, it was 2.9 percent.[9]

All of this is not to deny income inequality. Doing so would be to reject the obvious. The tendency of Reich to give such loose definitions as “the rich,” without giving context about the people who make up the category is misleading. Interestingly, Reich rarely mentions the Federal Reserve System. In his documentary, Inequality for All, the Federal Reserve is not mentioned. Thus, his followers are unlikely to connect the dots between political clout being the source of “unfair” income inequality, rather than a loose definition of CEOs of private corporations.

When statistics about categorical groups are exclusively observed many important underlying causes and variables go unseen. The notion of an emerging group of economic overlords abates once it is realized that “the rich” are human beings as well, who experience good and bad years.


  3. Sowell, Thomas. “5.”Economic Facts and Fallacies. 2nd ed. New York: Basic, 2008. 140. Print.
  4. Sowell, Thomas. “5.” Economic Facts and Fallacies. 2nd ed. New York: Basic, 2008. 143. Print.
  8. Sowell, Thomas. “5.”Economic Facts and Fallacies. 2nd ed. New York: Basic, 2008. 145. Print.

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