Empire Zone is another Band Aid

By Joseph Kellard
January 15, 2007

Air Stream, the Oceanside-based food corporation, will likely receive Empire Zone status and thus be eligible for many tax incentives.

I certainly champion tax cuts and breaks, primarily since this means
productive individuals get to keep the money they’ve earned, rather than have bureaucrats confiscate it from them under threat of jail time.

But the need for the Empire Zone to keep companies from relocating points to a much larger problem, to which this tax program is merely a Band Aid. Looked at in the long-term, tax cuts alone simply shift their recipients’ tax burden to other individuals. The state may reimburse local municipalities for lost tax revenue due to the cuts, but those reimbursement dollars are also taken from taxpayers. So in the long term, tax cuts without commensurable or greater spending cuts --particularly to major, enormously costly government-run programs such as Medicaid/Medicare and Social Security -- are ultimately counterproductive.

Yet instead of demanding cuts in spending for these ever-expanding social programs, some people call for greater taxation, particularly for the wealthy, who nevertheless bear the greatest burden due, in part, to “progressive” income taxes.

People opposed to the Empire Zone, which aims to lessen the tax burden on businesses rather than have them move to tax-friendlier areas, are like those who complain about U.S. companies that incorporate or put their income in foreign lands with few or no specific taxes. While some paint these companies as “unpatriotic,” the reality is that they act in the same spirit as America's original patriots.

A few years ago, Stanley Works, a Connecticut tool maker, and Ingersoll-Rand, a New Jersey industrial manufacturer, proposed to move to Bermuda, partly because the island has no income tax. With this move, Stanley Works expected to cut corporate taxes annually from about $110 million to $80 million; Ingersoll-Rand from about $155 million to under $115 million.

What the most productive companies do with their tax savings is save or invest most of them to expand their existing businesses or create new ones. This translates, properly, into greater profits for them, and greater products and services, more jobs and better earnings for others.

Yet representative Charles Rangel of New York had denounced these practices. "Some companies flying the Stars and Stripes renounce America when it comes to paying their taxes,” he said. “They choose profits over patriotism. But supporting America is more than about waving the flag and saluting -- it's about sharing the sacrifice."

Translation: companies seeking a "tax haven" -- i.e., greater economic freedom, overseas to make and keep their money, are essentially unpatriotic; so government must eliminate these freedoms, shackle the self-interests of individuals and force them to sacrifice to pay their “fair share.”

But to suggest that Americans who use available freedoms to avoid (not “evade”) more burdensome taxes aren’t paying their “fair share,” is to say that they are being unfair about allowing politicians like Rangel to continue to increasingly pick their pockets.

A patriotic politician wouldn’t demand the injustice that some Americans, because they earn more money, should be taxed at a higher rate than lesser wage-earners. If fairness is their concern, then the Rangels in government should nix the progressive income tax and have everyone, rich and poor, pay taxes at equal rates.

A patriotic politician wouldn’t enact laws to eliminate the freedoms provided by tax havens. Instead, he would champion these as legitimate means for all Americans to protect their property from bureaucrats’ confiscatory hands -- property they have a right to selfishly pursue, keep and spend as they see fit.

A patriotic politician would assert loudly that taxes are too high for all Americans, and that the U.S. tax system is progressively tightening its stranglehold on them. And a patriotic politician -- whether a Democrat or Republican -- would find the courage to cut or phase out government spending on major redistributive programs, like Medicare and Social Security, our nation’s middle class entitlements, which alone would provide substantive, substantial tax deductions for all.

Yet politicians like Rangel not only won¹t cut spending, they focus on ways to continue hiking them while creating diversions. One such diversion is to paint companies that seek tax breaks overseas as "unpatriotic” – all the while evading how our nation was founded by tax revolters.

America's original patriots defied Britain's heavy taxation, exemplified by their revolts against the Stamp and Townshend acts, and by signing the Declaration of Independence, which charged that among King George III's "repeated injuries and usurpations" was his "imposing taxes on us, without our consent."

Because Bermuda's tax system reflects what America's once was -- before the income tax became a fixture after 1913 -- companies like Stanley Works and Ingersoll-Rand are brothers-in-arms with our nation's original patriots. Their relocation to tax-friendly foreign lands represents their Boston Tea Party.

Meanwhile, many small home owners to corporations move from states with heavy taxation, like New York, to states with comparatively less burdensome taxes, like North Carolina. According to Rangel's illogic, however, these individuals and companies "renounce" their states, and should sacrifice by staying put to pay their fair share. Actually, these individuals are simply seeking ways to retain more of their property that our founders championed as their right to keep.

Today, many Americans want tax cuts, but not without the necessary spending cuts that would make those cuts substantive. They consent when our political representatives sustain and expand the entitlement programs they favor, but cry when their outstanding and growing costs rear their ugly heads in many areas, from increased sales and property taxes to automobile and health insurance costs.

While some of our politicians understandably praise the Empire Zone as a good measure, I’m fighting for the day when this program’s call for reduced taxation are coupled with substantive spending cuts, and become the rule, not the exception, everywhere. Eventually, Americans and their representatives will have to consent to these realities, or otherwise face having to flee their states or the (former) land of the free.


* Joseph Kellard is a journalist living in New York.

Copyright © 2007 Joseph Kellard.