Jeff Glenzer CTP, Vice President and Chief Operating Officer, AFP
You don’t need me to tell you that complaining about politicians and regulators is practically an American tradition.
So instead of complaining, I’ll explain how political and regulatory efforts – however well-intended – hurt treasury and finance. And America.
I grew up outside Buffalo. I’ve seen the long, sad decline of the area up close. There are a variety of reasons for its demise, including enormous macro changes to the global economy and technology that a mere law can’t stop.
But I also saw partisan politicians and meddling bureaucrats, neither of whom really cared enough to do the right thing, posture and pester as things went from bad to worse. The right thing for them to do was to pose this question: How can we work together to save the region? We’re not going to agree on everything but surely we agree on what’s at stake. Surely we can cobble together a few measures to keep Western New York afloat.
Didn’t happen. Instead, once-thriving employers either shut down entirely due to burdensome regulations and onerous taxes, moved out of New York State, or were acquired by out-of-state companies with lesser tax and regulatory burdens.
Now I see what happened to the region and most of New York State playing out on a much larger scale in the form of the never-ending corporate tax debate.
Most agree that America’s corporate tax rate of 35 percent is too high. President Obama is on record. House Speaker Paul Ryan is on record. Yet no one will do the right thing and come together and hash out a way to lower the tax rate and keep American multinationals competitive.
Instead, we get developments like this:
“Profit shifting by U.S. multinational corporations is reducing U.S. government tax revenues by more than $100 billion each year,” according to a new paper by economist Kimberly A. Clausing.
Which leads to regulatory measures like this:
“The U.S. Treasury Department’s proposed regulations under Internal Revenue Code section 385, which are intended to deter corporate tax inversions, would also overturn established rules that determine whether an instrument is considered debt or equity – making life much more difficult for many corporate treasury and tax departments.” – Association for Financial Professionals article.
No one is accusing U.S. firms of doing anything illegal, just taking full legal advantage of the tax programs our elected officials and regulators created. “Lost” revenue is based on moving from a statutory and effective tax rate that is still second or third-highest in the developed world to jurisdictions that allow them to be a bit more competitive. Layered on top of that, we are one of only a few countries that do not offer a territorial tax system. Most of our competitors have lower tax rates and the ability to not pay tax at home on earnings from abroad.
No one is happy with the current system. But because our leaders won’t lead and hammer out a solution, even if it means not grand-standing for the media, we get a regulatory solution that goes way too far. As The Flaming Lips once sang, it’s like using a crane to crush a fly.
The Lips, by the way, are a platinum-selling rock group that records all their albums in a studio near Buffalo. They can easily return to their homes in Oklahoma City, just like I can fly to my house in Maryland after visiting my old stomping ground. But plenty of residents from my hometown can’t leave because they lack the resources to do so. That’s a direct reflection of the failure of our lawmakers. I hope they finally act to fix our corporate tax system before we see such failure on a national scale.