Obama's attempt to block tax inversion is a mistake

It was disheartening, to say the least, that just after finishing the previous post on the new-found strength in the dollar, I should read that "The Obama Administration Issues New Rules to Combat Tax Inversions." As I noted in a post two months ago, the way to address the "problem" of tax inversions is to reform the tax code, not make inversions more difficult or impossible.

As the WSJ article notes, it's still questionable whether the administration has the authority to block inversions via executive order. But in the meantime, this is likely to add up to a disincentive to invest in the U.S. economy. Capital only goes where it is welcome and treated nicely. One essential ingredient for a strong economy is to ensure the owners of capital that they are free to come and go as they wish. Trying to keep company headquarters here by force will only work to keep headquarters from coming here in the first place.

My years living in Argentina taught me firsthand that the best way for a country to stimulate capital flight is to try to prevent capital from leaving. It's very sad to see the U.S. emulating the proven-to-fail mistakes of the Argentine government.

This probably won't keep the dollar from appreciating further, but it will add to the headwinds that are keeping the U.S. economy from realizing its full potential.

Posted by Unknown

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