Justifying tax dodging in the name of innovation is nonsense

Some of the largest companies in the US pay very little when tax time comes around, unlike small businesses, low-income and middle class individuals, and sole proprietors, who have limited options for hiding money, moving it offshore, and taking advantage of other tactics that allow the rich to accumulate and hold wealth. This exacerbates social inequality, and it’s galling in the face of the lack of social services in the United States and the fact that every year, multiple states as well as the federal government absolutely gut the safety net, thereby letting down their side of the social contract — we contribute to society, we do our bootstrapping, and what we get is a kick in the face that tumbles us back to the bottom of the ladder.

Meanwhile, huge corporations are taking handouts from the government, ‘moving their offices overseas,’ and engaging in other really sketchy activities to avoid tax bills. These activities are pretty transparent to the IRS — you don’t have to be a tax auditor to see what they’re doing and these tactics are so widespread that they’re a regular topic of discussion in the media. Yet, the IRS hasn’t made much of a move to check rampant corporate tax evasion, another reminder for ordinary people in the US that the federal government’s priorities don’t seem to lie with addressing the huge problems with the distribution of wealth in this country.

The thing is, I often hear people defending corporate tax evasion with the notion that they reinvest the money they ‘save’ by not paying their taxes into innovation. I must, if I may be indelicate for a moment, call bullshit on this, as the kids like to say. Because there is absolutely no evidence that these kinds of handouts by default — for that’s essentially what it is when the federal government politely ignores the fact that you owe huge amount of money — actually result in innovation and benefits to society as a whole.

Corporations aren’t operating to warmly and fuzzily help us all live in a happy, delightful world filled with ponies and sprinkles. They exist to generate revenues for their shareholders. This is their function. Clearly, there’s an obvious incentive to develop products that people want to buy, and by extension to do at least some innovating to work on those products and be competitive in the market, but that doesn’t necessarily equate to continuous R&D, and trust me, companies don’t need to take money from the government to do it. They’re going to invest no matter what to stay competitive, and the rate of that investment wouldn’t slow if they had to pay their taxes. Their shareholders might temporarily lose out, but I actually doubt that, because that’s not how these things work.

Some of the greatest developments in science and technology came from the government itself. That includes the military and auxiliary agencies along with agencies like NASA. The government has also contributed to the grants that facilitate amazing inventions. Do individuals and private companies invent cool things? Obviously, on a pretty regular basis, and that’s great. But depriving the government of funds makes it more difficult for it to invest in R&D of its own, including opportunities that will never be available to the general public — for example, it’s military medicine that contributed to the development of modern trauma care, better prosthetic devices, better treatment for TBI. No other setting provides such a huge pool of patients to work with, or provides a chance to follow up on such a huge cohort — the horrors of the battlefield aren’t somehow justified by the advances that come out of it, but the military has developed, and continues to develop, lifesaving and lifechanging technologies by dint of what it does.

That’s not something that private medical device companies and researchers can do. While drug companies might be making some of the products that the military uses, that doesn’t mean they get to dodge out on their taxes. I don’t want to hear that drug companies spend scads of money in R&D — I know that they do, and I also know that drugs can come quite far down the pipeline before they have to be abandoned, for a variety of reasons. I also know that companies abandon orphan drugs very quickly, focusing on big moneymakers to the exclusion of other medications. I might be more sympathetic to government handouts that would promote investment in orphan drugs, but that’s not how it ends up working. Instead it’s dangerous diet pills.

Everyone loses when corporations do not pay their taxes, and I’ve had enough of justifications for it. We aren’t obligated to subsidise the operations of major companies, which is what people are asking us to do when they demand that we look the other way in the face of big offenders. Just as some of the same companies pay some employees so poorly that they have to resort to public benefits — and companies even help their staff apply for them — they are greedily asking for more by refusing to pay into those benefits programmes.

I have absolutely no sympathy for those who wish to whine about a normalisation of corporate profits and a market correction. Yes, companies that actually pay their taxes like everyone else may experience a momentary dip in value. Few will actually have to reprioritise their spending, though, and as a general rule, they’re not going to suffer in the short or long term. If following the law and abiding by the contract that governs the rest of us — the one that says we all need to contribute to build a better world — is so onerous, perhaps they really should relocate outside the US.

Image: Tax Time, Images Money, Flickr