The Wall Street Journal

EDITORIAL: US tax policy keeps sending companies overseas

Here we go again. A major U.S. company merges with a foreign firm in part to avoid America’s punishing corporate tax code, and the politicians who refuse to reform the code denounce the company for trying to stay competitive. The gullible in the media then dutifully play along. Sigh. Let’s try to explain one more time why it makes perfect business — and moral — sense for Johnson Controls to merge with Tyco, as it announced Jan. 25 it would do. Tyco has a U.S. headquarters in New Jersey but is legally domiciled in Cork, Ireland. Johnson Controls will own roughly 56 percent of the combined company and its legal headquarters will move to Cork from Milwaukee, Wisconsin, where it has been based for more than a century. To simplify for Democratic presidential candidates: The U.S. federal corporate income tax rate is 35 percent. The Irish rate is 12.5 percent. Johnson Controls says the tax savings from its move to Cork will be roughly $150 million a year. A CEO obliged to act in the best interests of shareholders cannot ignore this competitive reality. The merger means that Johnson Controls will have more money to invest back in the U.S. because the income it earns overseas would not be subject to the U.S. tax rate. Only if Johnson kept its headquarters in the U.S. would its foreign earnings be double-taxed upon repatriation. If Johnson Controls refuses to do such a deal now, a foreign competitor might end up buying Johnson Controls anyway to achieve the same savings. As with other such tax “inversions,” there are also non-tax strategic reasons for the merger. The new company will have under one roof much of the equipment and services desired by the owners of large commercial buildings, from air conditioning to fire suppression. But none of this business logic impresses Hillary Clinton or Bernie Sanders, who helped to write the U.S. tax code as senators but are now competing as presidential candidates to see who can demagogue more ferociously against American employers. Clinton called the merger “outrageous” and Sanders is calling the executives “corporate deserters.” Neither one wants to reform the tax code to make U.S. tax rates more competitive with the rest of the world. Instead they want to raise the costs of doing business even further. Clinton’s solution is to raise taxes on investors with higher capital-gains taxes, block inversion deals, and apply an “exit tax” to businesses that manage to escape. Sanders would go further and perform an immediate $620 billion cashectomy on U.S. companies. The Vermonter would tax the money U.S. firms have earned overseas, even though that income has already been taxed in foreign jurisdictions and even if the companies aren’t bringing it into the U.S. Sanders’ campaign website says that after the big revenue grab in year one, his change would increase federal revenue by perhaps $90 billion a year thereafter. And he would limit future corporate inversions by taxing many inverting companies as if they never left. His revenue goal is a fantasy, because the practical effect would be to encourage many more companies to flee American shores. Never mind the lost tax revenue, this kind of punishing tax policy is immoral. Multinational corporations with global customers can always relocate to wherever it makes the most business sense. Their American employees aren’t so lucky because their livelihoods depend on thriving and competitive U.S. companies. If the employees can’t move, or their companies can’t compete, they’re the ones who lose their jobs or don’t get raises. Has the Democratic Party moved so far left that it doesn’t understand even this most basic of business realities?

EDITORIAL: Bundys, and the feds, need to be reined in

As the FBI seeks to end the citizen takeover of Oregon’s Malheur National Wildlife Refuge, it’s worth reflecting on what is behind the rising civil disobedience in the American West. The armed occupation of federal buildings is inexcusable, but so are federal land-management abuses and prosecutorial overreach. Activists on (Jan. 2) broke into an unoccupied building on the 187,000-acre federal refuge in eastern Oregon to protest the imprisonment of two Oregon ranchers. The group’s spokesman is Ammon Bundy, son of Cliven Bundy, a Nevadan who in 2014 came to national attention over his standoff with the Bureau of Land Management. The younger Bundy is a political grandstander, and many in Oregon oppose his illegal siege. The drama is bringing attention to legitimate grievances, especially the appalling federal treatment of the Hammond family. The Hammonds’ problems trace to 1908, when Theodore Roosevelt set aside 89,000 acres around Malheur Lake as a bird refuge. The government has since been on a voracious land-and-water grab, coercing the area’s once-thriving ranchers to sell. The feds have revoked dozens of grazing permits and raised the price of the few it issues. It has mismanaged the area’s water, allowing ranchlands to flood. It has harassed landowners with regulatory actions that raise the cost of ranching, then has bought out private landowners to more than double the refuge’s size. The Hammonds are one of the last private owners in the Harney Basin, and they have endured federal harassment over their water rights, the revocation of their grazing permits, restricted access to their property, and prosecutorial abuse. In 2001 the family told authorities it planned to set a managed fire on its land to fight invasive species. The fire accidently spread over 139 acres of public land before the Hammonds extinguished it. In 2006 the family tried to save its winter feed from a lightning fire by setting “back fires” on its property (a common practice), which burnt an acre of public land. Years later, in 2011, the feds charged Dwight Hammond and his son Steven with nine counts under the elastic Antiterrorism and Effective Death Penalty Act. A federal jury found them guilty only of setting the two fires they had admitted to starting, and federal Judge Michael Hogan sentenced the father to three months and the son to a year in prison. He said the federal minimum of five years would not meet “any idea I have of justice, proportionality” and would “shock the conscience.” The feds appealed the sentence and another judge ordered both Hammonds to serve the full five years. They also owe $400,000 in supposed fire-related costs. Many in rural Oregon view this as a government vendetta. Rusty Inglis, who worked for the Forest Service for 34 years and now runs a local Oregon farm bureau, recently told a trade magazine that it’s “obvious” that “the BLM and the wildlife refuge want that ranch.” The Oregon Farm Bureau called the sentences “gross government overreach.” The ideology of “national” land has become the club to punish private landowners who are the best source of economic stability and conservation. The Bundy occupation of federal land can’t be tolerated, but the growing Western opposition to government harassment of private landowners ought to be a source of political concern. Ted Cruz and others are right to caution the occupiers against their sit-in, but the federal bureaucracy also needs to be reined in.
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