Obama’s Attention to Border Crisis Outrages African-Americans Sunday, 17 Aug 2014 03:10 PM By Todd Beamon
President Barack Obama’s attention to the illegal immigration crisis, which could lead him to issue executive orders early next week to delay deportations and grant work permits to as many as 6 million migrants, has soured many of his core voters: African-Americans.
Many blacks, who twice voted for Obama in record numbers to elect him — and keep him — as the nation’s first African-American president, are angry that he has neglected the problems facing inner cities while working on the border crisis.
These big-city ills include chronic black unemployment, poor housing conditions, steep prices for food and services, low high-school graduation rates, and high crime rates.
“Black people are being played,” Herman Cain, the 2012 Republican presidential candidate, told Newsmax. “They have been taken for granted by Democrats for decades. Now they’ve reached a boiling point with this whole crisis on the border, and some of them are speaking out.”
By all accounts and as reported by Brietbart.com, the number of Border Patrol arrests of illegal immigrants since Oct. 1 stands at 174,000 and is still rising.
Cain and other African-American conservatives charge that Obama “manufactured this crisis” through a 2012 executive order that created the Deferred Action for Childhood Arrivals program.
The DACA ended the threat of deportation for as many as 670,000 illegals between the ages of 15 and 31 who were brought to the U.S. before their 16th birthday. In June, the administration extended the program for two more years.
“We’ve got a real crisis in every major inner city in this country,” Cain said. “They’ve done exactly nothing to understand the problem, let alone do anything about it.”
Anita MonCrief, board member of the Black Conservatives Fund, told Newsmax that African-Americans have long been “sour on Obama.”
parasites and political clowns in Washington, Trenton
Don’t blame the business people
AUGUST 17, 2014 LAST UPDATED: MONDAY, AUGUST 18, 2014, 12:16 AM SUBURBAN TRENDS Print
Don’t blame the business people
Dear Editor:
A recent letter to the Suburban Trends expressed outrage that some business groups take their holdings offshore to avoid U.S. taxes.
The writer shows a complete ignorance of economics and a hostility to private business.
Business and industry flee America because of the anti-free market environment they have to deal with thanks to the politicians and unelected bureaucrats. No business leader in their right mind would want to set up shop where they will be penalized for being productive.
How many Americans know that the income tax, which we’ve been saddled with since 1913, has its origins in Karl Marx’s “Communist Manifesto” of 1848? “Comrade Karl” thought the income tax so important that it’s the number-two item (next to the abolition of private property) in his plan for a socialized all powerful centralized state!
Add in all the other unconstitutional agencies and bureaus like the EPA, FDA, BATF, and many, many more, and it isn’t hard to see why business leaves the United States.
It’s not just the bloated federal government that is to blame. We have tons of state, county, and local laws, taxes, and regulations across the land that stifle business. These petty local tyrants make life miserable for anyone trying to succeed in business development.
My father, retired construction official Gene Richards of West Milford, is a case in point, In 1998 he came out of retirement to serve on West Milford’s Zoning Board of Adjustment. It didn’t last long as he was thrown off for stating that zoning was a form of property rights violation by government. I don’t want to sound paranoid but I honestly think my pro-freedom libertarian activism over the years may have had something to do with it too. Nobody likes independent thinkers who see beyond the phony “Liberal” versus “Conservative” debates on various issues.
If you wish to bemoan America’s slow economic growth and decline, don’t blame business people. Rather focus on the parasites and political clowns in Washington, Trenton, and your local community who always want more “controls” on virtually everything. They are truly a menace! Vote them out ASAP!
Police Militarization in Ferguson — and Your Town By WALTER OLSON
Why armored vehicles in a Midwestern inner suburb? Why would cops wear camouflage gear against a terrain patterned by convenience stores and beauty parlors? Why are the authorities in Ferguson, Mo. so given to quasi-martial crowd control methods (such asbans on walking on the street) and, per the reporting of Riverfront Times, the firing of tear gas at people in their own yards? (“ ‘This my property!’ he shouted, prompting police to fire a tear gas canister directly at his face.”) Why would someone identifying himself as an 82nd Airborne Army veteran, observing the Ferguson police scene, comment that “We rolled lighter than that in an actual warzone”?
As most readers have reason to know by now, the town of Ferguson, Mo. outside St. Louis, numbering around 21,000 residents, is the scene of an unfolding drama that will be cited for years to come as a what-not-to-do manual for police forces. After police shot and killed an unarmed black teenager on the street, then left his body on the pavement for four hours, rioters destroyed many local stores. Since then, police have refused to disclose either the name of the cop involved or the autopsy results on young Michael Brown; have not managed to interview a key eyewitness even as he has told his storyrepeatedly on camera to the national press; have revealed that dashcams for police cars were in the city’s possession but never installed; have obtained restrictions on journalists, including on news-gathering overflights of the area; and more.
The dominant visual aspect of the story, however, has been the sight of overpowering police forces confronting unarmed protesters who are seen waving signs or just their hands.
If you’re new to the issue of police militarization, which Overlawyered has covered occasionally over the past few years, the key book is Radley Balko’s, discussed at this Cato forum:
Federal grants drive police militarization. In 2012, as I was able to establish in moments through an online search, St. Louis County (of which Ferguson is a part) got a Bearcat armored vehicle and other goodies this way. The practice can serve to dispose of military surplus (though I’m told the Bearcat is not military surplus, but typically purchased new) and it sometimes wins the gratitude of local governments, even if they are too strapped for cash to afford more ordinary civic supplies (and even if they are soon destined to be surprised by the high cost of maintaining gear intended for armed combat).
As to the costs, some of those are visible in Ferguson, Mo. this week.
Rand Paul: ‘Big Government Has Been at the Heart of the Problem’ in Ferguson
Katrina Trinko / @KatrinaTrinko / August 14, 2014
Sen. Rand Paul, R-Ky., today blasted “big government” in response to the current situation in Ferguson, Mo.
In an op-ed published in Time, Paul wrote, “Not surprisingly, big government has been at the heart of the problem.” He continued:
“Washington has incentivized the militarization of local police precincts by using federal dollars to help municipal governments build what are essentially small armies—where police departments compete to acquire military gear that goes far beyond what most of Americans think of as law enforcement.”
Talking about the photos and footage coming out of Ferguson, a suburb of St. Louis, Paul wrote that they “resemble war more than traditional police action.”
The Kentucky senator, however, also sounded a cautious note about the protests in Ferguson, writing, “The outrage in Ferguson is understandable—though there is never an excuse for rioting or looting.”
“There is a legitimate role for the police to keep the peace,” Paul added, “but there should be a difference between a police response and a military response.”
There have been protests in Ferguson since the death of 18-year-old Michael Brown, who was killed in an interaction with a police officer Saturday.
As World Boils, Fingers Point Obama’s Way
By PETER BAKERAUG. 15, 2014
WASHINGTON — In this summer of global tumult, the debate in Washington essentially boils down to two opposite positions: It is all President Obama’s fault, according to his critics; no, it is not, according to his supporters, because these are events beyond his control.
Americans often think of their president as an all-powerful figure who can command the tides of history — and presidents have encouraged this image over the years because the perception itself can be a form of power. But as his critics have made the case that Mr. Obama’s mistakes have fueled the turmoil in places like Syria, Iraq and Ukraine, the president has increasingly argued that his power to shape these seismic forces is actually limited.
“Apparently,” he said in frustration the other day, “people have forgotten that America, as the most powerful country on earth, still does not control everything around the world.
Meet Four Business Owners Squeezed by Operation Choke Point
Kelsey Harkness / @kelseyjharkness / August 12, 2014
With no explanation, Brian Brookman last month lost the bank account for his pawn shop.
He had no idea why. Brookman says his store in Grand Haven, Mich., never had been in trouble with federal or state officials. And being in the pawn industry, he was required by law to get a city license every year.
“If there was ever a problem, they wouldn’t renew my license,” Brookman, a former police officer and Army veteran, told The Daily Signal.
After researching his case on the Internet, Brookman says he concluded that his banker, JP Morgan Chase, closed the account because two of his business activities — dealing in vintage coins and selling firearms — were labeled “high risk” by federal bureaucrats as part of an Obama administration initiative called Operation Choke Point.
Critics say Operation Choke Point, so dubbed by Department of Justice officials, seeks to weed out businesses that the White House considers objectionable.
The Justice Department contends the goal of the program is to combat unlawful mass-market consumer fraud, although recent evidence suggests otherwise.
A House report indicates that a primary target of Operation Choke Point is the short-term lending industry. A more expansive list of out of favor, non-financial businesses includes certain ammunition merchants, coin dealers, home-based charities, and sellers of pharmaceutical drugs – also lawful enterprises.
Alden Abbott, the Rumpel senior legal fellow at The Heritage Foundation, describes how Operation Choke Point works: Banks receive notifications from federal regulators, including the Federal Deposit Insurance Corporation (the agency responsible for insuring bank deposits), that the government considers certain types of businesses “high risk.” Banks then are pressured, though the implied threat of government investigations, to sever ties with customers engaged in those enterprises.
This puts business owners such as Brookman in jeopardy of losing their livelihoods without ever being prosecuted for doing anything illegal. Abbott said:
Government officials have no authority to deny lawful industries access to credit merely because the government dislikes their line of business. That runs counter to the rule of law. Only unlawful activity merits sanction.
Though they consider themselves in peril of losing customers and coming under further government scrutiny, Brookman and three other owners of small businesses spoke with The Daily Signal about being caught up in Operation Choke Point. One is a cancer survivor, one used to run a manufacturing company, and one is an Air Force veteran who moved back to his hometown to open a store.
Each previously came forward through the United States Consumer Coalition, a grassroots, free-market organization that encourages business owners to share their stories.
Steve Stratford, 72
Secure Account Services, LLC
Lake Havasu City, Ariz.
Stratford’s business provides payment-processing services to a variety of client companies and law firms in the debt-relief industry. Because of Operation Choke Point, he says, it has been on the verge of collapse twice in the past year.
Stratford says he worked in commercial real estate development after moving to Arizona to enjoy boating and desert exploration. In 2009, he started Secure Account Services. In the 1990s, he operated a business that manufactured rescue equipment, and had worked in the ski industry from the late ’60s to the mid-’80s.
In spring 2013, Stratford was surprised when both Chase Bank and Horizon Community Bank closed his business accounts, one after another. By law, his company’s funds must be held in a government-insured bank account. Without one, Stratford — whose title is director of operations – can’t do business.
“At the time these events were taking place, we were completely at a loss to explain what might have gone wrong,” recalls Stratford, who has two grown children and five grandchildren.
Doing some research, he came across information on Operation Choke Point. He then contacted the banks to ask whether government officials had exerted some “undue influence.”
A risk management representative for Chase confirmed his suspicion.
Confidentially, Stratford says, the bank employee told him Chase had sent letters to “hundreds of companies in similar industries in obedience to directions from several federal agencies, including the Office of the Comptroller of the Currency at the Department of Treasury.”
The banker told him that if his Chase branch didn’t “mitigate that risk,” all of its accounts could be audited.
“We can imagine the agony there,” Stratford says. “For what little gains they get off of a small company like ours is simply not worth their resources.”
Stratford and his seven full-time employees found another bank, but he remains uneasy about Choke Point.
“If there has been something that we were doing wrong, we would certainly like to know what that is so we could rectify that,” he says.
Sandra Perry, 72
Cash Express
Las Vegas, Nev.
Despite having an excellent track record, including an “A+” rating with the Better Business Bureau, Sandra Perry couldn’t find a local bank to serve her business, Cash Express.
Perry says her branch in Mesquite, Nev., which offers auto title and storefront cash loans, apparently was considered too risky by the bureaucrats running Operation Choke Point .
Three different banks and two credit unions wouldn’t let her open a local account. “I was told that the money service business is too ‘high risk’ for the banks,” says Perry, a stage IV cancer survivor.
“I was told that the money service business is too ‘high risk’ for the banks.”
Perry is still searching for a bank to do business with her Mesquite location. Without one, she has to make frequent trips between Las Vegas and Mesquite, which are 80 miles apart.
Perry also worries that future regulation leaves the viability of her business in limbo. “We don’t know what’s around the corner,” she says.
Her two employees are concerned that the job security they once had is gone.
Perry, now engaged, says she is forced to push off retirement.
“I’m 72, but because of economic uncertainty caused by Choke Point, I am not planning on retiring and sipping mai tais on a sandy beach anytime soon,” she says.
Brian Brookman, 43
West Michigan Pawn
Grand Haven, Mich.
Brian Brookman was a police office for 10 years before joining the Army after 9/11. When he got out, he and his wife of 16 years moved to Grand Haven, Mich., to start a private security agency.
Last fall, Brookman sold his agency to open a pawn shop. On the side, he sold firearms, but decided to let that license expire in June because of “overregulation.”
In July, he opened an account for the pawn shop with a local Chase Bank, where he and his wife had been private customers for years. Two weeks later, without warning, Brookman received a letter saying the bank was closing that new account.
“The only account they closed is my business account,” Brookman says. “It was strictly targeted at my business, and the only reason they would have targeted my business is because of Choke Point.”
Chase refused to elaborate, Brookman says, but he decided they either thought he was still selling firearms or categorized him as “high risk” for buying and selling vintage coins.
“There’s just no explanation,” he says. “It has to be Operation Choke Point.”
Brookman successfully opened a business account at another local bank. To his dismay, though, he received an email from PayPal saying the Internal Revenue Service has an issue with his account because of new regulations.
“I have heard many stories about PayPal closing accounts on gun dealers,” Brookman says. “But I’m no longer a gun dealer.”
Mark Cohen, 65
Powderhorn Outfitters
Hyannis, Mass.
Marc Cohen has been a Second Amendment supporter for years. After a four-year hitch in the Air Force beginning in 1970, he moved back to his home in Cape Cod to open Powderhorn Outfitters, a sporting goods store that sells guns and outdoors equipment.
Eleven years ago, he lost his wife to cancer. He remarried five years ago, Cohen says, after he “got lucky and found somebody else.”
Three months ago, Cohen had a rude introduction to Operation Choke Point. After approaching TD Bank for a new line of credit, he was rejected because of his involvement in the firearms industry.
Cohen says his bank manager of more than 20 years told him: “I’m very sorry to say this – I’m very embarrassed – but the bank won’t lend you money because you sell guns.”
Cohen’s TD Bank manager told him: “The bank won’t lend you money because you sell guns.”
Cohen was stupefied. “My credit and history are 100 percent,” he says.
When he came across Operation Choke Point on the Internet, Cohen was outraged.
He had bills to pay and six employees to support. “I depended on this,” he says.
Three weeks later, Cohen was able to find a bank that he says “would accept a second-class citizen.”
Now, he speaks out against the government operation.
“I can’t take on a Department of Justice and the Federal Deposit Insurance Corporation,” Cohen says. “I’d love to, but I can’t.”
Instead, he’s sharing his story, which he says has resulted in more than 600 of his Powderhorn customers leaving TD bank.
“They were livid,” Cohen says. “I had one young lady call me up and say, ‘I just closed my account from TD bank and I stood back about 10 feet away from the counter and announced to the whole bank why I was closing my account.’ ”
What does he think of the Obama administration’s actions?
“Choke Point is an affront to the American way of life.”
The Pentagon gave nearly half a billion dollars of military gear to local law enforcement last year
The events in Ferguson, Missouri this week are an uncomfortable reminder of the militarization of America’s small town law enforcement agencies. The photos coming out of the town–of heavily armed officers in full combat gear squaring off against unarmed protesters–look like images we’re used to seeing from places like Gaza, Turkey, or Egypt, not from a midwestern suburb of 21,000 people.
One of the ways police departments have armed themselves in recent years is through the Defense Department’s excess property program, known as the 1033 Program. It “permits the Secretary of Defense to transfer, without charge, excess U.S. Department of Defense (DoD) personal property (supplies and equipment) to state and local law enforcement agencies (LEAs),” according to the National Law Enforcement and Corrections Technology Center.
The 1033 program has transferred more than $4.3 billion in equipment since its inception in 1997. In 2013 alone it gave nearly half a billion dollars worth of military equipment to local law enforcement agencies, according tothe program’s website.
Obama prepares schools for enrollment of migrant children
By Mario Trujillo
The Obama administration is preparing the nation’s schools to accept thousands of new students who illegally crossed the Southwest border and are now awaiting trials on their possible deportations.
A fact sheet from the Department of Education tweeted out on Tuesday highlights the children’s right to attend public school.
A startling new political science study concludes that corporate interests and mega wealthy individuals control U.S. policy to such a degree that “the preferences of the average American appear to have only a minuscule, near-zero, statistically non-significant impact upon public policy.”
The startling study, titled “Testing Theories of American Politics: Elites, Interest Groups, and Average Citizens,” is slated to appear in an upcoming issue of Perspectives on Politics and was authored by Princeton University Professor Martin Gilens and Northwestern University Professor Benjamin Page. An early draft can be found here.
Noted American University Historian Allan J. Lichtman, who highlighted the piece in a Tuesday article published in The Hill, calls Gilens and Page’s research “shattering” and says their scholarship “should be a loud wake-up call to the vast majority of Americans who are bypassed by their government.”
The statistical research looked at public attitudes on nearly 1,800 policy issues and determined that government almost always ignores the opinions of average citizens and adopts the policy preferences of monied business interests when shaping the contours of U.S. laws.
The study’s findings align with recent trends, where corporate elites have aggressively pursued pro-amnesty policies despite the fact that, according to the most recent Reuters poll, 70% of Americans believe illegal immigrants “threaten traditional U.S. beliefs and customs,” and 63% believe “immigrants place a burden on the economy.”
The solution, say the scholars, is a reinvigorated and engaged electorate.
Bank failures fading, but not completely, from view Aug. 12, 2014, 11:11 a.m. EDT
WASHINGTON (MarketWatch) — The number of bank failures is slowing down due to the improving economy and rising property values, but the industry is still not back to pre-crash levels and future growth remains uncertain.
Only 14 banks failed in the first half of this year, according to the most recent data from the Federal Deposit Insurance Corp. Last year, 24 banks failed – down from 157 failures in 2010, the peak failure year since the banking sector was taken down by the financial crisis in 2008. Typically, when a bank fails, its capital becomes too low to meet obligations to its creditors because of sustained losses, causing regulators to close it.
“This is a very typical bank failure cycle,” said Bert Ely, a banking industry consultant based in Alexandria, Va. “As the economy improves, banks work out their problems and the FDIC and other banking regulators closed failed banks, then you revert back to the normal situation of having very few bank failures.”
With the economic recovery continuing, many FDIC-regulated banks have improved their balance sheets, made more loans and enjoyed stronger earnings, but the industry has not improved to the single-digit annual failure rate pre-crisis.
“I don’t think we are back to the zero failure,” FDIC’s Chief Economist Richard Brown said, referring to 2005 and 2006 when no banks went under. “There are still institutions dealing with the aftermath of the recession.”
More than 400 banks remain on the FDIC’s unofficial problem list of troubled institutions that may run the risk of failure in the near terms. The list has shrunk to half the size of the peak year of 2010. However, the number remains elevated when measured against the pre-crash year 2007 with its mere 76 problem banks.
The declining pace of failures is an indication of more business activity, lower unemployment rates and a relatively stronger lending market.
Watch: This Guy Just Proved That Obama Is Opening The Door For Our Absolute WORST Enemies
“Do you feel safe?”
James O’Keefe, dressed in a trademark military jacket and dishdasha while wearing an Osama bin Laden mask, can casually cross into the U.S. without fear of the Border Patrol stopping him. O’Keefe asks, “Do you feel safe” before stepping into the 2-foot-deep Rio Grande in Hudspeth County, Texas.
The area looked well-worn with footprints, campsites, and littering, indicating that O’Keefe is not the only person crossing into the U.S.
BAGHDAD — In a surprise speech late Sunday, Iraqi Prime Minister Nouri al-Maliki resisted calls for his resignation and accused the country’s new president of violating the country’s constitution, a speech that plunged the government into a political crisis while it battles advances by Islamic State militants. (Yacoub, Salama/Associated Press)
Ouch! Hillary Clinton Blames Rise of Islamic Militants on Obama Policies
Posted by Jim Hoft on Sunday, August 10, 2014, 7:30 PM
In September 2011 in an interview with VOA Hillary Clinton said,
“Al-Qaeda was on the path of defeat.”
Posted by Jim Hoft on Sunday, August 10, 2014, 7:30 PM
In September 2011 in an interview with VOA Hillary Clinton said,
“Al-Qaeda was on the path of defeat.”
This was before the Benghazi massacre one year later.
But now she’s singing a different tune…
In an interview published Sunday, Hillary Clinton blamed the rise of Islamic militants in Iraq-Syria including ISIS on Barack Obama’s foreign policy.
AFP reported:
Former secretary of state Hillary Clinton blamed the rise of Islamist militants in Iraq and Syria on failures of US policy under President Barack Obama, in an interview published Sunday.
Clinton specifically faulted the US decision to stay on the sidelines of the insurgency against Syria’s President Bashar al-Assad as opening the way for the most extreme rebel faction, the Islamic State.
“The failure to help build up a credible fighting force of the people who were the originators of the protests against Assad —- there were Islamists, there were secularists, there was everything in the middle -— the failure to do that left a big vacuum, which the jihadists have now filled,” Clinton told the Atlantic.
Jimmy Carter has had a long-standing reputation as authoring the most ineffective foreign policy of any modern presidency.
To be honest, Carter deserves better.
When the man from Plains, Ga., moved to 1600 Pennsylvania Ave, he came wearing the anti-establishment headdress. In particular, when it came to foreign and defense policy, Carter promised that his policies would be anything but business as usual.
America, Carter claimed, could do less in the world. So he planned to pull U.S. troops out of Korea. His foreign policy would be based on fostering “human rights” and talking peace instead of war.
From the beginning, however, almost no foreign policy initiative went right. While the Camp David accords eventually led to the 1979Egyptian-Israeli peace treaty, they did not yield a peace agreement between Israel and the Palestinians, because the Palestinians rejected them from the start. As war rages between Israel and Hamas today, the accords never delivered on the promise of delivering a road map to long-term peace.
Where Carter struggled most, however, was over relations with the Soviet Union. Moscow saw Washington’s post-Vietnam malaise as a clear sign that the American century had ended early. The Soviets went on the offensive in almost every corner of the globe.
The Soviet invasion of Afghanistan galvanized Carter in a manner that has been mostly forgotten. Most Americans recall Carter’s feckless decision to pull the U.S. team out of the upcoming Olympics in Moscow, a self-defeating gesture that accomplished little. But as his presidential term neared its end, Carter apparently decided he was tired of being a foreign-policy doormat for Moscow.
He declared the “Carter Doctrine,” warning the Soviets that he would protect U.S. interests in the Middle East “by force if necessary.” And he ordered the establishment of a rapid deployment force, which would be capable of delivering a massive U.S. military capability into the Persian Gulf.
Further, Carter ordered the development of new generations of military capability and even proposed increasing defense spending, which had been in free-fall since the end of the Vietnam War.
This burst of seriousness didn’t save his presidency. The poor state of the U.S. economy, coupled with the embarrassment of the hostage situation at the U.S. embassy in Tehran, crippled his re-election efforts. Still, Carter left office amid signs that he had learned from his mistakes.
A common joke among conservatives during the 2012 campaign was that if Obama got re-elected, Americans would see what Carter’s second term would have looked like. But Carter might have been a bolder president in his second term. Obama, on the other hand, clearly has not. His second-term agenda has lurched from embarrassment to failure and back again.
Further, Obama has shown no signs of acknowledging that his own policies have contributed much to the reversals he has suffered on virtually every front, from managing Moscow to the mushrooming threat of transnational terrorism.
In no corner of the world had Obama seen more setbacks than in the Middle East. And he is running out of time to clean up his mess before leaving office.
Most of what Obama has broken can’t be fixed. But he could give the next U.S. president a fighting chance by following Carter’s example and doing something.
Reversing the atrophy of American military capabilities would be a start. He could also work to build solid relations with the countries the U.S. will need to build a solid foundation for a Middle East policy. The U.S. needs a string of strong bilateral alliances from Turkey to Jordan, Israel, Egypt, Morocco, Niger, Tunisia, and Algeria to help restore stability to the Middle East and North Africa.
For now, however, comparing Obama to Carter is an insult to Carter.
Seeking Lower Taxes, Companies Flee the U.S.
Arthur Laffer / Stephen Moore / @StephenMoore / August 10, 2014
The last several months have seen a wave of American companies merging with foreign companies, a process known as “inverting.” In effect, inversion is the corporate equivalent of a renunciation of American citizenship. By some estimates, about $250 billion of these deals have been consummated since the start of the year, and another $100 billion could be finalized soon.
As inversions have exploded onto the policy scene, Washington is scrambling to find ways to counteract a trend that could deprive the federal treasury of tens of billions of tax dollars, which Washington believes belong to the government. In President Obama’s own words, “My attitude is I don’t care if it’s legal, it’s wrong.”
Inversions vividly illustrate the amazing dysfunctions of the U.S. corporate tax code. The corporate tax raises $250 billion per year, or 1.5% of GDP, which is one of the lowest tax revenues in the world. And, the U.S. has the highest corporate tax rate in the world. If that’s not enough, compliance costs are huge and the corporate tax is a job killer.
An inversion occurs when an American company merges with a smaller company in a lower-tax jurisdiction such as Ireland. The deal is structured so the smaller company acquires the larger American company. Operations and management often remain in the U.S., but the legal headquarters is changed to the lower-tax jurisdiction.
By inverting, the company is no longer legally U.S.-based and thus is not required to pay U.S. taxes on profits earned abroad.
A notable requirement — IRS code 7874 added as part of the American Jobs Creation Act of 2004 — is that the shareholders of the smaller target company must end up owning at least 20% of the inverting company’s shares. Obama wants to raise this requirement to 50%.
U.S. Tax System Onerous
The rush to invert is a direct result of the 39.1% U.S. corporate tax rate, including state and local corporate taxes, compared with an average corporate tax rate for the rest of the world of 25%.
U.S. corporate taxes also apply to world profits, not just profits earned in the U.S., which makes an inversion cost-effective for an American company operating abroad. Anyone who is watching these inversions happen and still believes that tax rates don’t matter is living in a parallel universe.
The recent rush to invert is in part because other nations are cutting their corporate tax rates — the U.K., Japan and Spain most recently — making the cost savings much greater for U.S. companies. The other reason companies are rushing to invert now is to preempt discriminatory legislation proposed by the Obama administration.
The chart below encapsulates the problem. The U.S. was once a low corporate-tax rate nation; now we are the highest. The 39.1% U.S. rate has been effectively unchanged for 20 years, but the rest of the world has been slashing rates. This is a phenomenon we have called “supply-side economics goes global.”
We have also talked to CEOs who say they can negotiate sweetheart tax deals to bring their corporate tax rate below 10% and sometimes down to zero.
Blame Everyone Else
The administration’s response is simple: Blame everyone else for the dysfunctional tax code and then outlaw inversions retroactively. Because most inversions involve foreign minnows swallowing U.S. whales, a 50% foreign-ownership requirement, if made retroactive to May 2014, would make most of the mergers that have already taken place illegal and very expensive.
We believe the Obama proposal is pure demagoguery and would encourage multinational companies to avoid the U.S. altogether, meaning even fewer U.S. jobs. The Obama plan is like seeing a raging fire in a building and locking all the doors shut so no one can get out.
After the midterm elections, Congress and the White House could strike a bipartisan deal to slow down the inversion process, including some corporate-tax-rate reduction. A corporate tax rate of 28% could be “paid for” in part by closing corporate “loopholes” such as the wind tax credit and other energy subsidies.
Democrats will insist on repealing tax deferral on foreign-held profits. But even so, if the U.S. corporate tax rate is lowered enough, deferral will be less advantageous, and such a trade-off may be worthwhile.
In the longer term, Paul Ryan’s tax plan includes a swap of a value-added tax for a corporate profits tax. The Ryan plan is consistent with the Laffer Complete Flat Tax proposal. Because value added is essentially GDP and corporate tax revenues are between 1.5% and 2% of GDP, a full corporate tax switch from a tax base of profits to value-added would imply a corporate value-added tax rate in the low single digits.
We would put the odds of a partial corporate tax holiday on repatriated profits at 50-50. Companies with profits stored overseas could repatriate their earnings back to the U.S. at a lower tax rate. A tax holiday with a temporary tax rate of 5% to 10% could bring back to the U.S. as much as $1 trillion to $2 trillion parked overseas, raising as much as $50 billion for the Treasury.
Our view is simply that government doesn’t need more money; government needs to spend less. Thus, this $50 billion of additional taxes should be offset by permanent corporate-tax rate-reduction, dollar for dollar.
Tax On U.S. Jobs, Wages
We have always believed that the case for tax reform will catch on politically when American workers and unions start to see that this isn’t just a tax on corporate shareholders but on domestic workers as well.
The U.S. corporate tax sends jobs abroad by encouraging outsourcing, and it also lowers wages in the U.S. Kevin Hassett at the American Enterprise Institute finds that “corporate tax rates affect wage levels across countries. Higher corporate taxes lead to lower wages.”
Somebody please tell this to the Teamsters’ James Hoffa.
Another proposal would be to have the U.S. join other countries and move to a territorial tax system. American companies would simply pay the tax in the country in which their plant or facility is located. Republicans are skittish about this idea, worrying it would only further the incentive for businesses to move plants and jobs offshore.
Top Dems Urge Reform
The U.S. corporate tax is on the verge of complete collapse. Former Treasury Secretary Tim Geithner and former Fed Chairman Paul Volcker have advised Obama that the current corporate tax is an economic loser.
“The U.S. corporate tax incentivizes American businesses to move jobs offshore,” according to Volcker. “Unless the rate is cut substantially, this trend will continue and American workers will pay the price.”
Adds Geithner: “I do think there’s an overwhelmingly compelling case for broad-based corporate tax reform. The basic imperative is to get the incentives better and the fundamentals better for people creating and building things in the United States.”
