Tax Inversions and the Dems Who Love Them
Corporations are people, my friend. Just like human people, they will go to absurd lengths to reduce their income-tax liability, and just like human people, they can move to another country if the one they live in doesn’t suit them. So in that sense, when the generic drug company Mylan announced that it was renouncing its U.S. citizenship to become reincorporated in the Netherlands, it was just another example of a growing trend of so-called “tax inversions.” The method is fairly simple: American companies acquire foreign firms, and then reincorporate in those firms’ home countries to take advantage of their lower tax rates.
Business as usual, right? But a bizarrely obsequious piece on the Mylan move by Andrew Ross Sorkin caught the eye of National Journal’s Ron Fournier because of one intriguing detail: The CEO of Mylan, Heather Bresch, is the daughter of a U.S. senator, Joe Manchin. “This is the sort of story that makes blood boil in populists,” wrote Fournier, and even for Fournier’s many critics, it would be hard to argue with his basic conclusion that the system is rigged. For a CEO to wax poetic about her patriotism (Bresch’s company owes its revenue to Americans’ out-of-whack healthcare spending), complain that she can’t get an audience in D.C. (her father, again, is a senator), and then bolt for European shores for a marginally lower tax rate (to the land of un-American things like bicycles and euthanasia!)—this is the stuff that stereotypes about horse-trading and hypocrisy in our capital are made of.
Manchin, it must be said, has criticized his daughter’s actions. In an interview with Fournier, he said he’d support a bill to ban tax inversions. And after Mylan first announced its plans to move, Manchin said he was “disappointed,” though he did it in a way that implied he’s more disappointed in us for not cutting corporate tax rates further. But while Fournier identifies the chicanery of this whole situation, he doesn’t go further, to ask why Manchin’s daughter can make this sort of arrangement so easily.
Manchin, at first glance, is not the type of senator whose daughter you would expect to be a tax dodger. He’s not a cartoonishly evil Republican who makes no excuses for his relentless pursuit of profit, or the head of an old-boys network like the Kennedy clan. Instead, he’s a humble conservative Democrat from West Virginia who has made a career out of playing the pragmatic, straight-talking, country-boy centrist. He’s the guy who just wants to work together and get stuff done.
When Manchin isn’t busy being “disappointed” about his daughter’s decision, what is he doing? He’s begging his party to stick its finger in the political wind, even if that means halting the expansion of health care to millions. He’s cutting campaign commercials where he boasts of his NRA endorsement, and then literally shoots Obama’s cap-and-trade bill. He’s railing against environmental regulations just after a chemical spill occurs in his state, and over 300,000 of his constituents find themselves without safe water. And he’s constructing a devilishly sophisticated critique of Obama’s foreign policy: “We’re not leading.”
If Fournier were to listen to the sort of language Manchin uses—one that stresses “common sense,” the middle ground, “getting stuff done,” and “leading”—it would likely sound very appealing to him, because Fournier’s entire body of work is essentially a classified ad for a politician who embodies these qualities. What Fournier is after, even if he famously refuses to admit a partisan preference, is a Clinton-style New Democrat or a George W. Bush-style “compassionate conservative.” In other words, he’s after someone like Joe Manchin. Judging by the “Draft Joe Manchin” campaign that’s sprung up recently, he’s not alone.
The problem is that Manchin’s ideology all but guarantees that behavior like his daughter’s will flourish. A central pillar of conservative Democrats’ faith—whether we call them New Democrats, Blue Dogs, or something else—is that government should be run more like a business, and as such, intermingling between the public and private sector is not only inevitable, but desirable. Sure, politicians and regulators use their power as a jumping-off point to become a lobbyist or permanent consultant, or simply land a lucrative job in the industry they used to regulate, but only simpletons call this the “revolving door.” Successful people call it “leveraging your brand.”
There are famous examples of this: Robert Rubin going to Citibank after helping to repeal Glass-Steagall; Dick Gephardt transforming from a working-class Missourian into a superstar lobbyist; Peter Orszag insisting it’s “lazy” to assume his political connections have anything to do with his huge Citibank salary. Republicans do this too, often far better than Democrats do. (Despire Eric Cantor’s primary loss, the former House Majority Leader is going to be just fine.) The spirit that underlies all this behavior, and that prompted Mylan to decamp for the Netherlands—that the government should promise lots of goodies to business owners and beg them to continue gracing us with their presence—is a matter of disposition, not party.
And the people who are most likely to practice politics with this disposition are also those who are most likely to hold forth about a post-partisan future in which the “sensible majority” commits itself to a political vision consisting mainly of, “It’s time to stop talking and get things done.” If anyone has the temerity to press these people on what exactly they want to get done, the answers are usually predictable: treat the debt and deficit as the biggest problem our country faces, treat wealthy people with a high degree of deference, and enact across-the-board tax reform that broadens the base and lowers the rates.
Recently, the editors of Bloomberg View, whose namesake is probably the most successful “radical centrist” of the last decade, defended tax inversions. Even a relative slap on the wrist, such as a bill barring federal contracts for companies who invert, is too punitive, they said. (For them, anything short of a pro-business overhaul of the whole tax code is unacceptable.) Fournier, to his credit, has a more populist vision for the center, suggesting that the government do something like “cut federal drug payments to Mylan by roughly the amount of taxes [Manchin’s] daughter is taking to the Netherlands.” Another suggestion proposed by Sen. Carl Levin involves raising the threshold for non-U.S. shareholders a company must have to be considered a “foreign” company for tax purposes, from 20 to 50 percent.
These are both good suggestions. But solving the problem of tax inversions, and the larger culture of corporate entitlement that it represents, will require more than just tinkering with federal subsidies and equity benchmarks. It will require us to look at the Clintonite wing of the Democratic Party and stop assuming they’re acting in good faith simply because they speak in platitudes about bipartisanship, patriotism, pragmatism, and leadership.
Joe Manchin and his daughter have not been led astray by the temptations of too much money. They have arrived exactly at the place where their ideology was destined to bring them.