Does Constitutional Government Still Matter? Or Can Unelected Bureaucrats Unilaterally Crown Themselves Our Healthcare Emperors and Demand that We, their Subjects, Obey their Decrees?

Americans from coast-to-coast are applauding U.S. Senator Rand Paul (R-KY) because he is going to force a vote on his resolution to repeal travel mask mandates on public transportation and airplanes. The science is clear, mask mandates have not saved lives and have not slowed the spread. Yet, despite the clear evidence from the last two years, many continue to insist on mask mandates. Curiously, these were some of the loudest and most shrill voices demanding that Americans follow the science — yet, they now clearly defy and ignore the science. 

Thankfully, Sen. Paul, also a medical doctor, is requiring government to be accountable and be reasonable. While many in government seek to use fear and demagoguery to keep Americans worked up and living in fear, it is clearly time to learn to live with COVID and mitigate its impact. But the insistence on perpetual COVID mandates and the fear mongering and threats of mandates do nothing to save lives or improve health. Senator Paul’s resolution to repeal travel mask mandates on public transportation and airplanes can be found HERE. 

If requiring people to perpetually wear masks is a good idea, why not follow the constitutional process of law-making? Why not ask Congress, the people’s representatives, to vote on it? It is stunning that for almost two years, Americans have been forced to follow the baseless edicts of bureaucrats and over-zealous executives. But not once have those supporting mandates followed the constitutional process of voting on proposed laws in the legislature and then asking the executive to sign the law into effect. And no one exercising (or actually abusing) these powers has bothered to explain where in the Constitution, the government has the power to issue all these so-called healthcare mandates. And they also don’t bother to explain why their mandates are needed or supported by the data.

It is time for this abuse of power to stop and for Congress to vote. While we do not believe that the Federal government has the legal authority to force Americans to wear masks, it is certainly well within Congress’ purview to put an end to abuses of federal power and usurpations of constitutional power. And we thank Sen. Rand Paul for seeing to it that Congress at least goes on record as whether constitutional government still matters or whether unelected bureaucrats can simply crown themselves healthcare emperors and hand out edicts that their subjects must follow.

February 22, 2022

The Honorable Senator James Lankford
316 Hart Senate Office Building
Washington, DC 20510

Dear Senator Lankford and Staff,

We write knowing full well that you and our organization are aligned in our commitments to promote the principles of individual freedom, limited government, free markets, and traditional American values. The purpose of our message today is to recognize your strong work and introspection into the problems that have plagued the deeply indebted and dysfunctional U.S. Postal Service. 

As you are aware, the Homeland Security and Government Affairs Committee, of which you are a key member, last held a hearing with USPS leadership to discuss its finances and operations on August 21, 2020 as part of the 116^th Congress.¹ At that time, Postmaster General Louis DeJoy outlined the case for legislative action to reposition the Medicare program as a defacto financial backstop for addressing the Postal Service’s “unaffordable retirement payments,” given that the USPS has been encumbered by its “management strategy that has not adequately addressed these issues.”² The Committee has not convened to consider postal legislation in 2022, nor in 2021. 

As you are also aware, the House passed version of the Postal Service Reform Act (H.R. 3076) was subject to a clerical error during transmittal to the Senate, prompting an objection by your colleague Sen. Rick Scott on February 14^th.³ With this motion, Sen. Scott further communicated how this postal legislation “does nothing to secure the future of postal workers and Medicare recipients or make the Postal Service more efficient.” 

This should be of great concern to all legislators who espouse the values of responsible, accountable governance, and dedication to public service. 

To this end, Sen. Scott also sent a letter to the Congressional Budget Office seeking clarity on the budgetary effects of H.R. 3076 in years ahead, along with requesting demonstration of fiscal impacts on the Medicare Hospital Insurance Trust Fund, costs to the Medicare program, and effects on Medicare premiums.^4. Such information was not sufficiently provided in the CBO’s recently released “Estimated Budgetary Effects” of H.R. 3076.⁵ The CBO’s initial findings were not subject to formal discussion in the House Ways & Means Committee, and the House bill was ushered to a full chamber vote three days later, on February 8, 2022. 

Given your strong judgment, Senator Lankford, and your unique position in membership of both Homeland Security and Government Affairs Committee, and the Senate Committee on Finance, we respectfully call upon you to provide the requisite level of scrutiny that the current Postal Service Reform Act deserves. We urge you and your staff to exhaustively pursue all Committee measures that will allow for honest debate on a reformulated bill that is in the best interest of postal customers and American taxpayers. 

Earlier in February, your colleague and Senate Finance Ranking Member, Sen. Mike Crapo, discussed the depths of the Medicare program’s fiscal distress and what that could mean for beneficiaries. Sen. Crapo stated: “Moreover, with each passing year, we are steadily moving closer to the Medicare Trust Fund’s exhaustion date, at which time the program will no longer be able to pay full benefits for our nation’s seniors.  We must be thoughtful and cautious to avoid exacerbating the fiscal challenges we face.”⁶

In our evaluation, the Postal Service Reform Act will invoke significant harm on the Medicare program’s ability to rightfully fulfill its promises to Americans.

In closing, we have included with this letter our recent opinion piece published in The Oklahoman, “Does the Postal Service Reform Act address core problems?,”⁷ which highlights the lack of honest discussion around the bill. We recognize your unwavering service on behalf of Oklahomans and thank you for this opportunity to share our views.  

Sincerely,


George Landrith
President
Frontiers of Freedom

Letter to the Editor 

The Oklahoman

February 4, 2022

A recent opinion article relies on faulty logic and omission of facts about the USPS (“Postal Service steps up to the challenge, needs Congress to deliver reform,” Jan. 12). The USPS lost $87 billion in recent years and carries $188 billion in debts. 

The author omits his ideas for how USPS would address this problem. His preferred “Postal Service Reform Act” would set in motion the plan to slowdown mail delivery times for everyone and have the federal government conduct a $58 billion bailout. The proposed bill does nothing to fix the Post Office’s core problem: they ship packages for less than their true costs. 

Hopefully Sen. James Lankford and Sen. Jim Inhofe can see that the Postal Service Reform Act is simply a bad deal for Americans and has no plan to help the USPS achieve financial sustainability.

– George Landrith, President of Frontiers of Freedom, Virginia

Link:  https://www.pressreader.com/usa/the-oklahoman/20220204/281728387922471 



FOOTNOTES:

1 – “Examining the Finances and Operations of the United States Postal Service During COVID-19 and Upcoming Elections,” hearing, HSGAC, August 21, 2020, https://www.hsgac.senate.gov/examining-the-finances-and-operations-of-the-united-states-postal-service-during-covid-19-and-upcoming-elections

2 –  “STATEMENT OF POSTMASTER GENERAL AND CHIEF EXECUTIVE OFFICER LOUIS DEJOY before HSGAC,” testimony of Louis DeJoy, Postmaster General, United States Postal Service, August 21, 2020, https://www.hsgac.senate.gov/imo/media/doc/Testimony-DeJoy-2020-08-21.pdf 

3 –  “Sen. Rick Scott on Senate Floor: Postal Reform is Needed; But it Can’t Be at the Cost of Medicare Recipients, Postal Worker,” press release, Office of Sen. Rick Scott, February 14, 2022, https://www.rickscott.senate.gov/2022/2/sen-rick-scott-on-senate-floor-postal-reform-is-needed-but-it-can-t-be-at-the-cost-of-medicare-recipients-postal-workers 

4 –  Sen. Rick Scott letter to Director Phillip Swagel, Congressional Budget Office,” February 14, 2022, https://www.rickscott.senate.gov/services/files/5FD84464-1455-4E95-9E31-96143650F647 

5 –  “Estimated Budgetary Effects of Rules Committee Print 117-32 for H.R. 3076, the Postal Service Reform Act of 2022,” CBO, February 4, 2022, https://www.cbo.gov/publication/57821 

6 –  “Crapo Statement at Hearing on Youth Mental Health,” Sen. Mike Crapo, February 8, 2022, https://www.finance.senate.gov/ranking-members-news/crapo-statement-at-hearing-on-youth-mental-health 

7 –  “Does the Postal Service Reform Act address core problems?,” George Landrith, Frontiers of Freedom, The Oklahoman, February 4, 2022, https://www.pressreader.com/usa/the-oklahoman/20220204/281728387922471    

In the years after World War II, the United States dominated the world economy–so much so that no other nation came close to the U.S. in its global influence and economic might. 

But this dominance meant that the United States had no concerns about competing powers or threats to U.S. prosperity. Other countries did have to worry, so they constantly worked to make their tax and regulatory system more competitive. Over time, other countries surpassed the U.S. in various ways. 

A Modern Tax Code

One of the most important ways that other countries surpassed the U.S. was in modernizing their tax codes. A modern tax system avoids double taxation of capital income and has the lowest possible corporate tax rate. A modern tax system also recognized the global economy. To be strong at home, and to serve foreign markets, companies usually need to produce and build factories in the markets they serve. This does not mean moving jobs overseas. It means keeping headquarters jobs in the home country. The headquarters jobs are associated with management and R&D. Headquarters jobs produce a disproportionate share of income and represent the highest salaries and benefits. The more operations overseas, the stronger the headquarters is at home. The point of having a global operation is to support the home base. 

Therefore, beginning especially in the 1970s and 1980s, countries began to adopt tax systems that encouraged their home companies to go global and earn foreign profits that could make the home companies stronger, resulting in better jobs and more R&D in the home market. The new model of taxation was territorial. Home companies paid taxes at home, and they paid taxes on their foreign operations in foreign countries. There was no barrier to bringing profits home. Also, importantly, business decisions in one country had no bearing on business decisions in another country, at least for tax purposes. Under a territorial principle, every country was independent, and so there was no need to worry that tax policy in one country would interact with another. Also, a business decision in one country would have no adverse tax consequences in another. The territorial principle is all about simplicity on one level. But it is also about growing a global network that supports the home office. 

The U.S. Lags Behind 

Ironically, the United States was the victor in World War II, but it saw no reason to update its pre-World War II tax system. Before World War II, the model for international business was export trade. Companies made widgets in their home countries, and they exported them overseas. For a long time, the United States was the best place and most competitive place to make widgets, so the U.S. tax system relied on taxing overseas sales. The U.S. tax system worked on what is called a worldwide principle since U.S. companies paid taxes in the U.S. on their worldwide income. This made sense when international trade was mostly about trade involving exported goods, and the U.S. was far and away the best place for manufacturing, farming, mining, and many types of business. But over time, the nature of trade changed. Trade became more about intellectual property, and international investment, to build a global network production that supported the home base, or the headquarters operation, by sending profits home. But while most other countries in the OECD adopted the territorial principle, the U.S. stubbornly insisted that U.S. companies should be taxed worldwide. One result of this was that any business decision overseas had both foreign and U.S. tax consequences, which made business planning complicated. 

Then another thing happened. It was President Ronald Reagan’s Tax Reform Act of 1986. Reagan cut the corporate tax rate from 50 percent to 35 percent. At the time, this was one of the lowest corporate tax rates in the world. Suddenly other countries began to cut their corporate tax rates too and kept cutting them, to be more attractive as company headquarters. By 2017, other countries had cut their tax rates so much that the United States had the highest corporate tax rate in the OECD—and the other countries, the United States applied its corporate tax rate of 35 percent on a worldwide basis. This meant that if U.S. companies made money overseas, they had to pay U.S. tax on any profits they brought home. Since the U.S. tax rate was higher than all foreign tax rates, and sometimes much higher, this meant that companies avoided bringing profits home for reinvestment in the U.S. Instead, they declared they declared their foreign profits to be permanently reinvested overseas as a way of avoiding U.S. tax on repatriated earnings.  This defeated the purpose of a tax policy to support global trade. Instead of allowing money to flow home, U.S. tax policy pushed investment dollars overseas. The U.S. had adopted a “Do Not Invest in America” policy.

Headquarters Move Overseas

There was something even worse that happened. Headquarters offices with headquarters jobs started moving overseas. This is because foreign companies were able to buy U.S. companies on a scale that had never been possible before. Foreign companies could buy U.S. companies because they could afford to pay a higher price for U.S. companies than U.S. companies or investors could.  Indeed, foreign companies could pay more than U.S. companies for acquisitions outside the United States as well. 

The price one pays for a company is a multiple of the after-tax income it produces. If a company produces $1 million in earnings per year, and the valuation multiple for that industry is ten times, then a foreign investor that pays no foreign taxes on its U.S. income can buy the company in the U.S. for $10 million. This is called an inbound acquisition. However, if a U.S. company wanted to buy a foreign country overseas, in an outbound acquisition, it would have to account for the difference between foreign taxes and U.S. taxes.  If the tax rate in the foreign country was 20 percent, about the OECD, average, then the U.S. company would have to account for a 15 percent difference between the foreign taxes and the U.S. taxes. The U.S. company buying a foreign company would effectively pay a 15 percent tax on its purchase, whereas the foreign company buying a U.S. company would pay no additional tax at home. 

By the early 2000s, foreign companies were buying U.S. companies at an impressive rate. To some extent, this reflected the globalization of the economy and increased prosperity worldwide since World War II, which is a good thing. But because of the tax differential, the number of inbound acquisitions of foreign companies buying U.S. companies far exceeded the number of comparable outbound acquisitions in which U.S. companies bought foreign companies. This had two results. One was that iconic U.S. brand names and companies started moving overseas, and the corporate headquarters jobs that had been in the U.S. moved overseas as well. Famous American companies with foreign owners now include Chrysler (French), Budweiser (Belgian), Ben & Jerry’s (Dutch), Good Humor (Dutch), Burger King (Brazilian), and even Kraft Heinz (also Brazilian). But the real impact came in pharmaceuticals, where Europeans were not far behind the U.S. and competitive to begin with. The greatest U.S. pharma companies started moving steadily to Europe. The crown jewel of America’s industrial R&D, Bell Labs, similarly became a French company with its parent, Lucent Technologies, was acquired by Alcatel in 2007.  As a result, at least in part, the U.S. has no manufacturer of 5G telecom equipment. 

The other impact had to do with startup companies, which are often a source of innovation, growth, and intellectual property. When a U.S. company competed with a foreign company to buy a startup, the foreign company often won because it could pay a higher price. The U.S. company could not pay as much, because it had to factor the OECD’s highest corporate tax rate into what it could afford to pay. 

More recently still, China has entered the scene. Chinese companies are subsidized at home, and they pay no Chinese taxes on their foreign earnings. Chinese companies have been aggressively buying startup and mature companies alike in the U.S. and Europe. 

Where has this led us? Chinese companies are buying top startups and smaller firms with attractive technology portfolios.  U.S. companies have been reliant on Chinese suppliers since the U.S. tax code makes it cheaper to buy from Chinese suppliers than to build factories and facilities in the U.S., or to produce in China from U.S.-owned facilities. In the time of the covid pandemic, the U.S. is dependent on China for most of its basic medical supplies. In a world where 5G will soon dominate the airwaves, and become the basis for the Internet of Things, the U.S. has no company that produces 5G telecom equipment. It’s a tax-induced disaster, made all the more dangerous by China’s aggressive intentions to dominate the world and impose its authoritarian style of government elsewhere. 

Fixing the Problem 

President Donald Trump recognized the problem. President Trump’s tax reform did two things right away. First, it lowed the corporate tax to 21 percent, which is about the middle of the pack in the OECD–not the highest, not the lowest, but close to the average and competitive. Then, it adopted the same territorial principle that nearly all of the major trading partners of the U.S. in the OECD use, so the United States was suddenly more competitive that way too. In a big change from its post-war arrogance, the U.S. studied the lessons of foreign countries. It may come to the surprise of many, but Trump’s all-American, America-first tax reform was designed to make the U.S. tax code look like the tax codes of the United Kingdom and the Netherlands, which long before the United States ever existed were already among the most successful trading nations of all time, and whose Anglo-Dutch model of shareholder capitalism was the foundation of the U.S. economy as well. 

But to address three uniquely American problems, President Trump built three features into his tax system. One feature was designed to make sure that income earned in the United States was actually taxed in the United States, and not exported to lower-tax countries through leaks in the nominally worldwide but also obsolete and antiquated tax code of the U.S.  This was called the Base Erosion and Anti-abuse Tax (BEAT). Another feature was designed to deal with the problem of U.S. industries that were based primarily on intellectual property, such as tech and pharma, earning profits overseas but never sending these profits back to the U.S. because of U.S. tax. This was a tax on a category of income called Global Intangible Low Taxed-Income (GILTI). For example, before BEAT, the world’s most valuable company, Apple, shifted many of its U.S. profits into low-tax Ireland. Also, before GILTI, Apple made profits worldwide and moved these profits to Ireland as well, never paying U.S. tax or moving the profits back to the U.S. GILTI respects the territorial principle, and it does not tax U.S. companies making normal profits in a foreign country. However, the tax applies a test for supernormal profits, and if a company is making more than a 10 percent return in any country, GILTI assumes that some of the unusually high profits in the foreign country result from shifting profits out of the United States, and therefore it applies a certain level of U.S. tax to them. Then there is the tax on Foreign Derived Intangible Income (FDII). This is a tax on income that results from unusually high profits on export sales of goods made in the U.S. FDII assumes that some of these supernormal profits result from headquarters activity, R&D, or patents and intellectual property held in the United States, so in this case, it applies a level of U.S. tax as well. 

GILTI and FDII are designed to work in complement to one another. To discourage companies from moving their patent portfolios or research operations to foreign countries, GILTI and FDII have incentives and penalties to make sure that no country in the world offers better tax treatment of intellectual property for U.S. companies, but also that the U.S. tax treatment of U.S. intellectual property is the most favorable in the world. Together, GILTI and FDII mimic something called a “patent box,” which is used in the UK and European countries to ensure that intellectual property gets a preferential rate in those countries, as long as the R&D was performed there and the resulting patents are housed there as well. 

Don’t Turn Back the Clock 

For a long time, the United States pursued unilateral disarmament with regard to tax policy while other countries engaged in an arms race to make their tax systems more competitive. We see the result in the loss of U.S. headquarters companies from the U.S. and the dangerous ascendancy of China, which seeks to dominate and monopolize the technologies of the future while putting them at the service of its totalitarian system. President Trump put the U.S. back on the offensive and at the top of its game. 

But President Joe Biden comes to office with a different set of values, in which government supposedly drives economic growth, and the government imposes high corporate taxes to support the welfare state, redistribute income, and reward its favored constitutions such as big labor. The major reason the United States took decades to overhaul its tax system while other countries made rapid progress is that labor unions fought to keep the U.S. on a worldwide tax basis. They argued the only possible reason for a U.S. company to locate overseas was to avoid U.S. labor costs, and for that matter, U.S. labor unions. But in fact, this is a view of global business that is decades behind the times. The primary model for global business today is not the export of commodities and manufactured from products from the U.S. That is important but is even more important for U.S. industries based on intellectual property to be able to operate anywhere, and for companies that serve foreign markets to support their U.S. headquarters by building factories and facilities around the world that still get their competitive edge from the U.S. knowledge economy.  Big Labor wants to turn back the clock, and retreat to an outdated economic model, while China, with a more modern tax system, threatens both U.S. prosperity and national security, and even friendly trading partners have been acquiring many of our best and brightest companies and moving their headquarters overseas in a lopsided, one-way flow of mergers and acquisitions.

The Trump tax reform is a territorial system that makes the U.S. competitive with its top trading partners. The Trump tax reform incorporates GILTI, FDII, BEAT, to make sure that the U.S. benefits from U.S. intellectual property while also enjoying the financial benefits and good jobs that come to headquarters companies at the center of a global network. But Biden’s view is different. He wants to go back to a worldwide system, where U.S. companies have the highest tax rate in the OECD at home and must pay a global minimum on their overseas earrings as well. The problem is that China has no global minimum tax, and China is the biggest threat today.

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J.P. Lucier is a tax policy analyst.