The phrase “going Galt” has suddenly become very popular, and according to Reuters, very apropos. American energy companies with the wherewithal have started transferring their businesses to places like Switzerland, where they can shield themselves from Barack Obama’s onerous tax policies for the next few years. Congress and the Obama administration will try to cut off this retreat route, but may not have much success:
The tidy towns and mountain vistas of Switzerland are an unlikely setting for an oil boom.
Yet a wave of energy companies has in the last few months announced plans to move to Switzerland — mainly for its appeal as a low-tax corporate domicile that looks relatively likely to stay out of reach of Barack Obama’s tax-seeking administration.
In a country with scant crude oil production of its own, the virtual energy boom has changed the canton or state of Zug, about 30 minutes’ drive from Zurich, beyond all recognition. Its economy was based on farming until it slashed tax rates to attract commerce after World War Two. …
Over the past six months companies including offshore drilling contractors Noble Corp and Transocean, energy-focused engineering group Foster Wheeler and oilfield services company Weatherfield International have all announced plans to shift domicile to Switzerland.
“Switzerland has a stable and developed tax regime and a network of tax treaties with most countries where we operate,” Transocean Chief Executive Bob Long said in a statement in October, when it announced its move. “As a result, the redomestication will improve our ability to maintain a competitive worldwide effective corporate tax rate.”
Companies have relocated businesses offshore in the Bahamas and Cayman Islands for decades, but the US government has pressured both to change its tax policies to curtail it. That will not likely work with Switzerland, because as Reuters notes, the Swiss have a lot more political clout on the world stage than either of these two have. The US can rattle its sabers over tax policy, but the Swiss hold more cards in Zurich and Geneva.
We can expect the usual demonization to follow, of course. John Kerry tried this with his “Benedict Arnold CEOs” line during his unsuccessful run at the presidency in 2004, but Kerry had it backwards then and Obama has it backwards now. Businesses exist to return profit to their shareholders, and they will structure the business to maximize that return within the limits of the law. If the US wants to attract businesses rather than repel them, then it needs to make itself an attractive place for businesses to operate. Calling them names and saddling them with heavy tax burdens won’t keep productive capital in the US, and in fact will repel it as other markets offer more welcoming environments.
These results are sadly predictable. Hiking taxes in a recession only discourages investment and increases costs to consumers. Either prices go up or jobs get lost. When producers can’t make profit any longer, they stop producing. None of this should come as a surprise to anyone, but the Obama administration keeps acting as though government confiscation of capital has no effect on economic performance. As long as that incompetence remains, expect more companies to go abroad, or go Galt.