Big money dodges taxes
Eighteen American multinationals – companies such as Nike, Microsoft and Apple – have used tax havens abroad to avoid what Citizens for Tax Justice estimates as $92 billion in federal taxes. This is money that could be used to provide universal pre-school for America’s children.
CTJ also found 235 companies reported last year over $1.3 trillion stashed abroad to avoid paying the taxes that domestic companies must pay. A Senate hearing showed how Apple used Ireland as its favorite tax haven, developing what Sen. Carl Levin called “the Holy Grail of tax avoidance,” creating “offshore tax entities … while claiming to be a tax resident nowhere.”
This outrage is not illegal. In a dodge known as “deferral,” the tax laws allow companies to forego paying taxes on money earned (or reported as earned abroad) until the company brings the money back to the United States.
This perverse loophole gives companies a very big incentive to ship jobs or report profits abroad. Through transfer pricing, multinationals can easily game the system to report their profits in low tax countries abroad, even while the bulk of their sales are in the U.S. This, in part, is how General Electric can make millions in profits and pay nothing in taxes.
As companies park more and more cash abroad, they then pay more in lobbying and campaign contributions to persuade Congress to give them a deep tax break if they bring the money home in what they call “a tax repatriation holiday.” The companies argue, as WinAmerica, the front for the current campaign does, that they’ll invest in jobs here in the U.S., but can’t afford to pay the taxes due (the same taxes that domestic small businesses can’t avoid). So let them bring the dough back at a nominal tax rate and they’ll reinvest millions in America.
Of course, each time the Congress provides this kind of tax holiday or amnesty, it gives the corporations an even greater incentive to stash their cash abroad.
The last time the Congress bought this malarkey, even the jobs argument turned out to be false. The companies bringing the dough back actually laid off workers in the ensuing years. They used the money to buy back stock (raising the value of their stock options), or to buy other companies.
Now with the trillions sitting abroad, the game is beginning again. “Bipartisan” bills have been introduced to let corporations bring bucks back home at a zero percent tax rate, if they agree to use some of the money to purchase bonds issued by a newly created federal infrastructure bank. They get to bring $6 back tax-free for every $1 they invest in infrastructure bonds.
Congress could simply get rid of deferral and tax companies on their profits no matter where they are reported, allowing them credit for taxes paid to foreign entities. Multinationals should pay the same tax rates as domestic companies do.
Credit: The St.Louis American