In his latest column for the New York Times, leading liberal pundit and celebrated economist Paul Krugman takes on the new trend in the world of corporate tax avoidance, the practice of "inversion," which is what U.S. corporations call it when they pretend a foreign subsidiary is the real owner of their company as an excuse to shift profits away from America's higher corporate tax rate.
"The most important thing to understand about inversion," Krugman writes, "is that it does not in any meaningful sense involve American business 'moving overseas.'" Inversion, Krugman says, is "a purely paper transaction" but one that "deprive[s] the U.S. government of several billion dollars in revenue that you, the taxpayer ... have to make up one way or another."
That's why, Krugman argues, those who defend inversion as a lawful and savvy move on the part of corporations looking to avoid America's supposedly confiscatory corporate tax rates "are ... talking nonsense" because "businesses aren’t moving production or jobs overseas — and they’re still earning their profits right here in the U.S.A."
"All they’re doing," Krugman writes, "is dodging taxes on those profits."
Folks who take the corporations' side on this one, Krugman claims, tend to try to make the perfect the enemy of the good, arguing that inversion shouldn't be tackled head-on but rather folded into the far more quixotic campaign of total tax reform. This tack, Krugman says, ignores that "the case for eventual reform basically has nothing to do with the case for closing the inversion loophole right now."
After all, there are big debates about the shape of reform, debates that would take years to resolve even if we didn’t have a Republican Party that reliably opposes anything the president proposes, even if it was something Republicans were for just a few years ago. Why let corporations avoid paying their fair share for years, while we wait for the logjam to break? ...
So this should be easy. By all means let’s have a debate about how and how much to tax profits. Meanwhile, however, let’s close this outrageous loophole.