Corporations urged to perform ‘civic duty’ by avoiding inversions loophole

The political narrative for many years now is that corporations have a civic duty to keep their businesses within the confines of the United States border and to pay the highest taxes possible. Is this a legitimate viewpoint to have if one cites freedom and liberty? Shouldn’t corporations be free to operate their business as they please as long as they don’t force the consumer to purchase their products and to refrain from partnering with Washington (cronyism)?

A topic that has captured headlines over the past week has been corporate inversions, a business measure of U.S. companies merging with smaller overseas corporations to avoid paying taxes in the U.S. This has been vehemently criticized by both sides of the political aisle, investors, economists and political commentators.

Speaking in an interview with CNBC last week, President Obama averred that corporations are taking advantage of the system and using loopholes, while refusing to pay their fair share and do the right thing for the country and its people.

“There are a whole range of benefits that have helped to build companies, create value, create profits,” Obama said. “For you to continue to benefit from that entire architecture that helps you thrive, but move your technical address simply to avoid paying taxes is neither fair nor is it something that’s going to be good for the country over the long term.”

Mark Cuban, billionaire investor and owner of the Dallas Mavericks, concurred and actually warned that inversions will cause the federal government to raise taxes in order to make up for lost revenues. He added that he would prefer a substantial reduction in bureaucratic red tape that costs a lot of time and money instead of a corporate tax cut.

“If this is part of a movement where in aggregate it really has a material impact on taxes paid, then again taxes are going to go up,” stated Cuban. “The cost of doing business … not the actual tax rate we pay … particularly for companies, individuals, entrepreneurs are easier to change and have a far greater impact on our net worth than all the ramifications and ruminations that the government can try to do to fix the tax code.”

Keynesian economist Paul Krugman, meanwhile, opined in the New York Times on Monday that it’s the “civic duty” of corporations to refrain from participating in corporate inversions and instead pay their taxes. Some say it’s time to ban inversion in favor of corporate tax reform, and Krugman agrees.

U.S. Treasury Secretary Jack Lew is one of those who want a prohibition on inversions. However, Lew posits that Congress should first ban inversions and then discuss the possibility of corporate tax reforms.

“It is so important that we reform our business tax code to make the U.S. economy more competitive and to accelerate economic growth and job creation,” Lew wrote in the Washington Post on Monday. “But one particular tax loophole has become increasingly urgent to address: the fact that the law rewards U.S. corporations with substantial tax benefits when they buy foreign companies and declare that they are based overseas.”

This past week’s latest news may reinvigorate the call for a broad flat tax, a policy that would require everyone to pay the exact same tax rate no matter what income bracket you may be in. Heck, it may even incite the calls for a FairTax again, a national consumption tax that everyone would pay.

However, this leads back to the initial question: do corporations have a “civic duty?”

First, what does “civic duty” mean anyway? Does it mean to abide by the mandates set in place by government? Is it defined as answering to every whim a public official has? Second, a corporation has the right to maintain a model as its shareholders see fit, and it only has a responsibility to the consumer to provide a dependable, reliable and affordable good and/or service. Third, corporations wouldn’t have to go through the expensive process of heading overseas if the U.S. economy and government weren’t so toxic with its endless red tape, taxes, fees, regulations and rules that never end. Just take a look at the tax code.

As more and more of these discussions take place, Ron Paul’s idea seems quite attractive: pay 10 percent of your income to the government – in the meantime – and be left alone to do whatever you please without interference from constant government coercion.