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INVERSION OR PERVERSION?

November 18, 2015

INVERSION OR PERVERSION?

American corporations were legally “citizens” long before the Supreme Court declared recently that they were not just artificial persons. Thus there are American corporations, Canadian corporations, German corporations et al., but corporate citizenship, like that of individuals, can be changed. I can become a Canadian citizen, for instance, if I meet the requirements of Canadian law, and while I don’t have a change of citizenship in mind, I will consider Canadian residency if one of the current Republican candidates for the presidency should succeed as I need a less hostile and more rational environment in which to live out my waning years.

Current corporate governance law does nothing to keep American corporations from changing their citizenship from, say, Delaware (where 57 % of publicly-held corporations are officially sited) to Frankfurt or London or Dublin; indeed our internal revenue code (largely written and amended by Wall Street lobbyists as of late) provides incentives for American corporations to change their citizenship. The process is known as “corporate inversion” and here’s how it works. The American multinational corporation buys what is usually a smaller foreign company in another country which has a smaller tax rate on corporations than in the U.S., renounces its American citizenship, and “moves” its corporate address to that country.

Take Pfizer, for instance. This huge American multinational pharmaceutical corporation is based in New York but has announced that it will become a “citizen” of Ireland, a tax haven. If and when it happens, Pfizer will have cut its taxes by some two-thirds, since Ireland taxes at about one-third our rate. Pfizer already has dodged paying its fair share of taxes to our treasury with its 151 “subsidiaries” in tax havens such as the Cayman Islands, and already has $74 billion in profits stashed overseas out of the reach of the IRS (which is legal under a section of the internal revenue code written by Wall Street lobbyists which provides that profits may be held overseas free of tax until repatriated to the U.S.).

Not only are such profits unavailable for taxation until repatriated, while such profits are resting in overseas tax havens corporate tax counsel for Pfizer can negotiate rate with the IRS. If you or I go into the local internal revenue office and ask for lower rates on our taxable income, expect blank stares – we pay the full freight. The sweetheart deals are for businesses only, as per usual, the result of what happens when politicians tinker with the tax code, and they do so frequently. The internal revenue code is by far the most amended federal statute on the books, averaging a phenomenal amendment per day, and you can safely assume that such amendments aren’t written by lobbyists for poor people, who don’t have any, but rather by armies of Wall Street lobbyists, who serve at Wall Street’s beck and call.

You can also safely assume that Pfizer will shift billions in profits from U.S. operations to Ireland every year in order to avoid paying what it owes in U.S. taxes. So what if such profits were derived from U.S. operations? Why should Pfizer pay three times as much to the U.S. as it would pay in taxes to Ireland when with a bit of accounting wizardry the company can not only cut its tax rate but stash such profits (allegedly derived from Irish operations) beyond the grasp of the tax man while its lawyers (if they so choose) dicker with IRS on rate pending repatriation of such profits arising from “Irish operations?”

Here’s another goodie Wall Street lobbyists have written into the internal revenue code: The change in citizenship for Pfizer (if it happens) to offshore Ireland will make no noticeable change in the company’s actual operations. Pfizer’s headquarters and employees will remain here. Pfizer will continue to use our roads, our bridges, our power grids. Though a non-citizen, Pfizer will enjoy the advantages of federally-funded basic research and government contracts with access to our legal system and to our workforce you and I paid to educate. They will enjoy the protection of patents on their pharmaceutical compounds under American law both past, present and future.

The citizenship thing is largely a paper fiction; the only substantial result is that Pfizer will no longer pay its fair share of taxes, leaving you and me to pick up the tab. That, readers, is corporate welfare. Pfizer walks away with the store; you and I either pay what they should have paid or put it on the long term debt bill which you and I remain liable to pay – but not Pfizer – it just had a tax cut of two-thirds.

I say that such an unfair outcome is a perversion rather than an inversion as so grotesquely misnamed by the lobbyists (akin to the Bush era “No Child Left Behind” and “The Patriot Act” where in truth all children were left behind and the “Patriot Act” was an object lesson in unconstitutional palaver). That particular section of the tax code as fleshed out smells to high heaven, as do others written by Wall Street lobbyists, the sum total of which will, I hope, explain to readers why I so often call for reform of the internal revenue code and its companion in corporate welfare, the bankruptcy code, both of which have morphed into statutory troughs of welfare for corporations, and at our expense sooner or later.

Finally, there is one more outrageous outcome from our failure to address the current corruption of the Conngress (and that is not a typo because you and I are being conned). You and I pay taxes to publicly educate corporate workforces; the corporations get a free ride, but what makes it worse is this: The corporations are increasingly demanding college graduates or even those with advanced degrees to man their positions (those not yet robotized or sent overseas) which means that ordinary American students have to go into substantial debt in order to qualify for such jobs, so that those who get jobs enter the workforce essentially as indentured servants.

Payments on their debt effectively decrease whatever salaries and wages they get from their corporate employers and, of course, is reflected in lesser market demand. Those who obtain college and graduate degrees via student loans and do not get jobs wind up at McDonalds or fall into the clutches of an employment contractor who sends them out on temporary jobs and skims a piece of their compensation off the top for its troubles. How serious is the student loan problem for those who are trying to meet new skill sets ordained by corporate America? Get this > American student debt is bigger than our aggregate credit card debt! So take bankruptcy on the debt whether student or credit card? Forget it. The Republicans have amended the bankruptcy act to foreclose such a possibility – while simultaneously allowing corporations to fail but survive bankruptcy through provisions in Chapter 11 of that Act.

So what is Pfizer’s response to all of these and other legislative gifts of corporate welfare lavished on their bottom line? Go to Ireland and leave the rest of us who are already holding the bag with a bigger one in search of yet ever more corporate welfare. What are we going to do about such atrocities, and  with an economy that is treading water and underperforming, when? Oh, don’t forget to vote. GERALD E

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