There's been a lot of talk about what we can't afford as a nation and who is getting what "gift" or which free ride. When President Obama met with CEOs and chatted with Jamie Dimon over the weekend, we should hope he issued a stern warning that the tax avoidance games (legally) played by big banks and multinational corporations are on the chopping block. When it comes to cutting, eliminating and restructuring things, these loopholes should be top-of-mind for all leaders.
For all the talk of the importance of giving corporations "certainty" to make sure they can remain "competitive," we aren't hearing a whole lot about what's being asked of them. After all, free enterprise is not free.
In the coming days, weeks and months there will be many pivotal conversations about how and where to tax corporations and how to reform our corporate tax system. Don't believe the hype that these issues are too complicated. They're not. If you paid more than 1.9 percent in income tax, you paid a higher rate than Apple. Period.
Collecting taxes on profits shifted offshore by corporations that benefit from government tax credits, tax loopholes, huge government contracts and, yes, doing business here should be like collecting low-hanging fruit. Both political parties need to work together to combat the damaging effects of the offshoring of jobs and revenues. Our current system drains our treasury. It threatens basic services and national security.
Citizens get it. According to a new poll by Hart Research on behalf of Americans for Tax Fairness, "84 percent of voters approve of increasing taxes on the profits American corporations make overseas, to ensure that they pay the same taxes on those as they do on domestic profits."
These issues were put on the national stage because of a presidential candidate who uses offshore accounts, and by the reporting of tax shell games by Apple, Google, Starbucks, Microsoft and General Electric. In the U.S. Microsoft and Hewlett-Packard have been investigated, with troubling results. A Senate investigation found that from 2009 to 2011, "Microsoft shifted $21 billion offshore, almost half its U.S. retail sales revenue, saving up to $4.5 billion in taxes on goods sold in the United States." Now, in the UK, Amazon, Starbucks and Google are being questioned by the government for shady tax practices.
The Obama administration and Congress need to correct a flawed system that has fostered legal tax avoidance and thus raised the ire of progressives, such as Sen. Carl Levin (D-Mich.), and conservatives, such as Senator Tom Coburn (R-Okla), alike.
Who can defend companies making record profits skipping out on their tax bills? Who can honestly keep holding up the disingenuous argument that multinational corporations in the U.S. pay the highest rate in the world when the fact is that it just ain't so?
Consider: According to the Congressional Budget Office, the average tax rate that corporations pay on domestic profits in the U.S. is about 12 percent. In fact, the current system is tantamount to a yearly backdoor bailout: a system that barely taxes them as it is.
Moving forward, we'll hear lofty-sounding ideas about "broadening the base, lowering the rates, closing loopholes," and more technical ideas about moving to a "territorial system" of taxation.
Let's start with the former: The loopholes that need to be closed are those that enable the largest corporations to pay extraordinarily low tax rates or no tax at all by shifting profits, patents and headquarters offshore. These cost us $100 billion per year. Let's talk about the multinational corporate tax base and those low or non-existent rates. If you're thinking that a corporation can't get lower than a 0-percent tax rate, think again.
With respect to the latter, lawmakers are in danger of making a bad situation worse. A "territorial system" would be tantamount to a permanent tax holiday for corporations. Under this system, companies would not have to pay U.S. federal income taxes on foreign earnings when they bring the profits back to the United States. These "foreign" earnings include the money that companies such as Google pay themselves for their own products or patents conveniently parked offshore. The sieve that is our system of taxing multinational corporations would become a gaping gulf into which even more revenues and jobs will fall.
Powerful special interests and CEOs have already lined up their money, their lobbyists and their media machine to try to lull lawmakers and citizens into believing that they're the grownups at the table and know what's best for you. They don't. Instead, they benefit from a system rigged for their interests. And now they want more, at your expense. According to the Institute for Policy Studies, 63 "Fix the Debt" companies that are publicly held stand to gain as much as $134 billion in windfalls if Congress approves one of their main proposals: a territorial tax system.
This is a critical time, and decisions made about taxation will have long-term and profound effects. It's not fair to continue to ask taxpayers and those who have paid into the system to sacrifice, while failing to collect existing tax revenue from corporations making record profits.
Free enterprise is not free. The nation's budget situation may be reason enough for some to close these loopholes, but the ramifications go much further. American corporations that benefit from the workforce, infrastructure, courts, markets and national security of the United States of America should not be allowed to avoid their responsibilities. In other words, passable roads, clean water, research grants and our national defense are not free.
Former U.S.-based corporations that have benefited from U.S. government research and development dollars and do the majority of their business in the U.S. should not be allowed to simply call a post office box in the Cayman Islands or an empty law office in Switzerland their "headquarters" to pass their tax burden to all other taxpayers.
Waxing on about loopholes without actually showing any real plan to close the most egregious kind is not leadership. False bravado about tough choices and hand-wringing about sacrifice regarding the debt by those who are driving the debt is patently ridiculous.
There's real money in cracking down on offshore tax dodging. Congress needs to close these loopholes and make large corporations pay taxes in the same country that provides them with the benefits and legal protections that make it so profitable to operate in the United States in the first place.
Follow Nicole Tichon on Twitter: www.twitter.com/TaxJusticeUSA
Nichole - The accrual of national debt can be viewed as another subsidy. While the corporations and banksters gut the American tax base, they use limitless borrowing to lull Americans into a false sense of economic security. The same banksters hold much of the debt, so they get wealth and power both ways.
Reduce corporate taxes to zero and let all profits flow through to the employees and stockholders who will pay individual income tax rates on that money. Even that notorious Tax Evader Mitt Romney would pay 14% taxes on those profits that flow through to him, compared with the 1.9% that Apple paid.
Maybe at one time, now it is a very sophisticated form of collusion.
That is why we need very strong Government and strong Unions to ensure that the interests of the workers, consumers and communities are not neglected in our headlong rush to maximize profits.
The Congress of the United States is unlikely to "crack down" on ANY loopholes in the tax code.
Who do you think WROTE them in the first place?
WE pay them about $174,000 a year, lobbyists about 6.5 Million each. Who do YOU think they REALLY work for?
You want BETTER government? Make them work for US, instead of the "special interests" groups.
Publicly financed campaigns, and the complete banning of all dark money. NO more "special interests" no more PACS, no more outside political ads.
THAT's the solution to a broken congress, and a corrupt tax code.
Unfortunately, you may have missed it too. Your suggestions for reform are great, but the same sleazes who accept massive lobby money write those rules too.
Under FairTax, all tax collections would happen with the sale of new items and therefore put an immediate end to the debate of fairness between workers, businesses, and international corporations. Additionally it would enable businesses to operate more efficiently enabling workers to earn higher wages, enable used products to retain a higher value while limiting overflow in landfills, enable the service industry to be more in demand, and provide for a means of tax collection in the underground economy. This is just a small example of the benefits FairTax (faritax.org). It certainly makes more sense than adding further additions to the current system.
Aren't I disincentivized from spending, or at least spending in this country?
The intent of my post was to point out some of the highlights and simplification, and offer a link were you could learn more about it. After spending half a day reviewing it, it appears to promising and cover the questions you bring forth. Read it or believe the spin that the pundits have against it, the choice is yours.
http://michael-hudson.com/2012/08/financial-predators-v-labor-industry-and-democracy/
If I buy an Apple product in the US, THAT'S where the taxes are due. If someone in China buys it, not my problem.
Corporations don't want tax "fairness", they never have. What they do want is complexity. I can't deduct first class airfare when I travel for business, yet they can deduct a private jet? Nonsense. Let them buy the jet and deduct, at most. the cost of business class airfare for each passenger, not crew, on the jet that are employed by the company. Everything else is non-deductible. Why should we be subsidizing your private jet.
NO to territorial taxes. That's sheer nonsense, but most people don't understand it. First they scam America by claiming their profits from goods sold in America are taxable in another country, then they want to bring those profits they didn't pay tax on to begin with, back to America, without paying taxes.
Sorry, but that doesn't work. Bring the money back, pay taxes at full rates.
People are getting fed up with this nonsense. Politicians should look to Europe to see what happens when people get really angry. Please don't be naive and tell me it can't happen here.
The high end targets I read of concerning deficit reduction are generally in the $4.5 trillion range over ten years. Closing those Havens and eliminating the Bush tax cuts for the top 2% would accomplish about $2 trillion of that all by themselves. Nearly half. At minimum 40% of the high end target. Phase out the remainder of the Bush tax cuts as the economy improves and you pretty much have it. Tax capital gains as regular income, eliminate carried interest, get rid of a few outlandish corporate subsidies and your done. Simple.