August 6, 2014
Can we depend on our representatives to undo some of what they have been doing? Maybe, maybe not. But it would be nice if they would give it a try.We’ve all heard of the KISS principle, haven’t we? Occasionally we overwork something, turning something that should be streamlined into something unwieldy, a creation that is not only un-aerodynamic, but wouldn’t even get off the ground. We have all sorts of polite ways to describe it.
We call it KISS when we’re familiar with the culprit, or we don’t need to worry about the consequences of an undiplomatic approach: “Keep it simple, Stupid!” And this brings us around to the decision on the part of Walgreen’s board of directors to keep the company’s headquarters located in the U.S. In preparing for a move known as a corporate inversion, the company spent no small amount of time and effort (and money) planning acquisition activity that would enable it – or nearly enable it – to move its corporate headquarters to a location with more favorable tax laws. The planned change, which was publicized some time ago, was scrapped in the wake of steadily mounting criticism, potential customer backlash, and fear that the deal wouldn’t pass IRS approval.
A key point here is that many other companies have managed to pull this off. In other words, it’s legal. A second is that, finding a location with more favorable tax laws is like shooting fish in a barrel. According to KPMG International, the U.S. corporate tax rate is 40 percent; only United Arab Emirates has a higher corporate tax rate at 55 percent. Among countries in the Organization of Economic Cooperation & Development, the average is more than 15 points lower at 24.11 percent. Some time ago I heard a short interview with Sen. John McCain (R-Arizona) on this topic, and he put the blame on the U.S. government for burdensome tax rates rather than companies for fleeing, or attempting to flee, to tax havens.
Of course this is just the tip of the iceberg. In addition to the corporate tax rate, the U.S. tax code overall has been maddeningly complex for decades. It’s not all that simple to find a single, printable version of it, so it’s hard to say how many pages it runs, but it’s easy to find online. The last section is labelled “Chapter 100—Group Health Plan Requirements (Sections 9801–9834)” which tells me everything I need to know. Anything that is divided into 100 convenient chapters, and runs nearly 10,000 paragraphs, is without doubt a dense and effectively impenetrable thicket, one that no single person can hack his way through, even with a lifetime supply of sharp machetes. Certainly it took many teams of staffers to write it, and certainly the only taxable entities that can comply with it, in its entirety, have teams of staffers (tax lawyers) to read it.
Of course it gets better. Broadening this further still to look at the full scope of U.S. legislation, I went to the Federal Register Web site, www.federalregister.gov. The Federal Register is handy because it carries information on changes to law, proposed changes to law, and other related news, thereby providing those who are interested a way to keep up with federal rules, regulations, and laws. The first thing that caught my eye was its length, 496 pages. Congress has been in session 107 days so far in 2014, so that works out to less than 5 pages per day. That’s not too bad, is it?
Of course I misread this. The tally, 496 pages, doesn’t refer to 2014. It doesn’t even refer to August. It refers to one day in August, specifically August 6. Sheesh! I went to August 5 to be sure. The Federal Register grew by 361 pages that day. August 4? That day’s work amounted to a mere 223 pages, but maybe that paltry amount is typical for a Monday.
If we were to bring all this to our representatives’ attention, could we depend on them to simplify matters? Progress is likely to be slow-to-nonexistent for two main reasons. First, big companies, the ones that send a lot of money to Washington, D.C., love the ever-expanding maze of federal regulation. The bigger the company, the deeper the pockets, and bigger the staff they can hire to help understand and negotiate the maze. This helps keep small competitors, companies that can’t afford teams of lawyers, at bay. Second, the representatives themselves stand to benefit. In the here-and-now, they have something to show their constituents; in the near or distant future, all this work creates job openings for them when they leave government—they can join the staffs hired by the big companies.
Unless they change direction, it's just a matter of time until they make it impossible to do business in the U.S.