There is an increasing gap between the thin slice of the U.S. population that enjoys fantastic wealth and the vast bulk of middle-income Americans whose paychecks have hardly grown at all in two decades. (See the figure below.)
Unlike the past, however, Republicans are not minimizing the plight of the poor and the power of corporations. That’s because they know that if they ever want to win the White House again, they must directly address the economic insecurity of Middle America. They know they must shake off their identification as the party of the rich. And they are working feverishly to connect with regular people and distance themselves from anybody or any group that can be labeled elite. And at the top of their list, after big government, is big business. Consider the following:
- Sen. Ted Cruz, R-Texas, on March 7 told conservative activists gathered in Maryland, “We need to end corporate welfare and crony capitalism.”
- In a video that began airing in April, Louisiana Gov. Bobby Jindal (R) tells viewers: “If you don’t think the Republican Party should be the party of big government, big business, or big anything, you’re thinking like a New Republican.”
- In an April 30 speech at the Heritage Foundation, Sen. Mike Lee, R-Utah, spoke of “America’s crisis of crony capitalism, corporate welfare, and political privilege in which government twists public policy to unfairly benefit favored special interests at the expense of everyone else.”
- On June 25, repeating a theme he has used in several recent speeches, Sen. Marco Rubio, R-Fla., said, “I have one criticism of my party. It's that too often, Republicans allow themselves to be a party that's not for growth, but that's for big business.”
- And two days before the he defeated former House Majority Leader Eric Cantor, R-Va., in the Republican primary, David Brat wrote in the Richmond Times-Dispatch: “I am running against Cantor because he does not represent the citizens of the 7th District, but rather large corporations seeking insider deals, crony bailouts and a constant supply of low-wage workers.”
Just as with any law that provides a tax shelter, rules that allow some firms to invert give rise to a variety of unhealthy economic consequences. In the current inversion-crazed environment, there are probably hundreds of businesses expending enormous amounts of cash and time evaluating one or more possible ways to invert. For the dozens that will actually consummate these deals, there will be additional millions of dollars of legal, accounting, and consulting fees. Except in the unlikely case in which all firms in an industry are able to invert on similar terms, tax rules will be creating winners and losers within an industry. And because some industries are more inversion-prone than others, the result will be an arbitrary tilt of the economic playing field in favor of some industries over others.
Pro-business establishment Republicans are comfortable allowing the inversions to continue. But saying you favor some yet-to-be-specified tax reform that may or may not occur at some unknown point in the future -- and which, by the way, is unlikely to eliminate inversions -- is no excuse for allowing this sorry state of affairs to prevail in the near term. That’s the policy argument against inversions.
Here’s the politics: Inversions are allowing a privileged group of big businesses with the help of high-priced lawyers and Wall Street investment bankers to quit the United States while other businesses and the public are left behind to be taxed as U.S. residents. Perhaps at some point populist Republicans will come to realize that allowing a few corporations special tax privileges is not consistent with their anti-corporatist, pro-working-class agenda.
This post is excerpted from an article that first appeared in Tax Notes.