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Doublespeak Won’t Save US Economy from Fleeing Businesses

By: Contributor - Sep 3, 2014, 8:06 am

EspañolBy Suzanne Schaefer

Burger King is moving its kingdom to Canada, causing US subjects to question the loyalty of their beloved fast-food franchise. While the restaurant claims it hasn’t pitched its patriotism, it seems clear that the motive behind its move north is the allure of lower taxes, and consequently, a better realm to rule its burger business

The misconception that Burger King has gone renegade is one that President Obama has popularized, turning to doublespeak to direct the public away from the bigger picture. A mechanism for misrepresenting the truth, doublespeak is common in political language, and President Obama is not averse to employing this technique.

In July, he decried those seeking tax inversion — the relocation of corporate headquarters to a nation with lower tax rates — as “corporate deserters,” calling for “economic patriotism” from US businesses. The implications of doublespeak vary, but in this case, the effects are proving problematic for those very businesses. Beyond the political sphere, President Obama’s use of rhetoric has infiltrated the marketplace and created distorted incentives that are harmful to commerce and the economy.

Condemnation of tax inversion is on the rise as businesses such as Walgreens, Medtronic, Burger King, and numerous other companies have, at the very least, flirted with the practice. Rather than release vague and manipulative statements that chastise these companies, President Obama should consider why these businesses are seeking to leave US soil in the first place.

The answer is basic economics. While tax inversion may seem like a form of evasion, it is a product of invasion — the incursion of government hands in businesses’ pockets. Corporate taxes have beleaguered businesses for years, dating back to their introduction in 1909. It is difficult to articulate the precise growth of the corporate-income tax, due to changes in the economy, tax law, and what is considered “income.” However, a quick look at corporate-income tax rates over the years makes it abundantly clear: the rates weigh heavy on the shoulders of US business.

Given these high taxes, one can easily see why businesses choose tax inversion. Government intervention in the form of high taxes has become a costly concern for business, causing some corporations to consider alternatives. When President Obama says these companies are “deserters,” and suggests that bowing to the will of government is “patriotism,” he effectively displays either a severe misunderstanding of economic principles or a penchant for misrepresenting the truth.

As author George Orwell writes in his essay Politics and the English Language, “The words democracy, socialism, freedom, patriotic, realistic, justice have each of them several different meanings which cannot be reconciled with one another.” To one, a patriot might be someone who deserts his country because it no longer champions the values it once did. To another, a patriot might be someone who stays with his country, regardless of the circumstances.

As a consequence, such language is usually a flowery front for a deeper agenda. Orwell continues, “Words of this kind are often used in a consciously dishonest way. That is, the person who uses them has his own private definition, but allows his hearer to think he means something quite different.”

It is likely that President Obama is not ignorant of the economic implications of high taxes. Rather, he is trying to have his cake and eat it too. He wants the federal government to claim corporate income at high rates without losing businesses to foreign soil. His strategy? Employ mechanisms of doublespeak, coupled with threats of bypassing Congress, to prevent businesses from seeking refuge elsewhere.

And regrettably, it is working. Already companies are halting efforts to jump ship for fear of the political backlash. Walgreens opted not to move its headquarters to Switzerland, after purchasing Alliance Boots, and Medtronic built an escape route into its legal agreement to buy Covidien in Ireland. They can now acquire the company as a domestic corporation subject to US taxes if necessary.

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Rather than focus on what is best for business, corporations are forced to consider the political leanings of government leaders. US officials are seeking ways to make tax inversion more difficult, such as limiting access to cash abroad. Meanwhile, European countries are attracting US business by cutting corporate tax rates.

When presented with these two options, any rational corporation would drop the former for the latter.

Businesses must be allowed to respond to their incentives in a logical way without government interference. Rather than condemn tax inversion and threaten to prevent these businesses from leaving via legislation or executive order, President Obama should consider what he can do to create an environment more welcoming to business.

Suzanne Schaefer is a Young Voices Advocate and Senior Campus Coordinator for Students for Liberty studying at Indiana University.