Inversions debate could define ’16 campaign

From the pages of In Business magazine.

While much of the 2016 political attention has been focused on the early primary states, something occurred in Wisconsin that might determine the ideological shape of the argument to come.

As most of you know, Johnson Controls in Milwaukee and Tyco International, headquartered in Cork, Ireland, announced plans to merge with the combined company having an Irish address. To gain roughly $150 million annually in tax savings, Johnson Controls pursued the deal as part of a corporate inversion, which I’ve long argued is a logical business response to our idiotic federal tax code. The U.S. corporate income tax rate is a very uncompetitive 35%. In contrast, Ireland’s corporate tax code is just 12.5%.

Johnson Controls is not the only American corporation to pursue an inversion and it won’t be the last. While legal, such inversions also mean less tax revenue for the government, which is one of the reasons I’ve pleaded for Congress and the Obama administration to work on tax simplification, a lower corporate rate, and other reforms to make our business climate more competitive.

Another reason is economic growth. After the preliminary estimate of fourth-quarter GDP came in at 0.7%, it’s now virtually ensured that 2015 will be the 10th consecutive year in which the U.S. economy has grown by less than 3%. That’s what you call a lost decade and it hasn’t happened since the 1930s, which featured something called The Great Depression. It’s time to reject the self-defeating notion of a “new normal” and give our economy a booster shot.

Stagnant wages and an understandably high level of economic anxiety have accompanied the slow-growth economy, which makes the 2016 election a possible tipping point. Will we revert to trade protectionism, which could become a bipartisan boogeyman, or perhaps continue our progression toward a European-style social democracy? The latter runs the risk of removing much of the dynamism the American economy enjoyed long ago.

Some European countries have actually gotten it right and Ireland is a perfect example. It wasn’t long ago that Ireland was a poor country, but it has been reaping the benefits of stronger growth, which include higher tax collections, thanks in part to its low corporate tax rate. The only question is how much longer will the U.S. play the sap?

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