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Sunday, October 23, 2016

Republican lawmakers have largely greeted President Barack Obama’s new spending plan as dead on arrival.

But at least one provision has a chance of becoming law: a plan to tax the profits that large U.S. corporations have parked in offshore tax shelters and use that money to rebuild the nation’s crumbling infrastructure.

A series of heavy snowstorms in my hometown of Boston made the need for that kind of spending boost eminently clear. The record snowfall brought the city’s aging and underfunded transit system to a complete halt. The hundreds of thousands of residents who depend on it have been repeatedly stranded.

So one thing is clear: We desperately need to invest in our infrastructure. But funding it through a corporate tax holiday on offshore profits is a shortsighted mistake.

While some of these profits are stashed abroad because companies actually produced a product overseas and sold it to foreign consumers, a significant share comes from money generated here. It’s parked offshore purely to avoid taxes.

Corporations don’t have to pay taxes on these profits unless they “repatriate,” or bring this money back. A tax holiday, touted as an incentive to encourage investment, would reward the worst tax dodgers who hold a combined $2 trillion offshore.

The last time Congress tried to address this problem was in 2004. That’s when corporations got a one-time, 85 percent discount on their taxes in exchange for voluntarily repatriating their offshore earnings.

This deal was billed as something that would spur growth and create jobs. Unfortunately, as research from the Joint Committee on Taxation and the Center on Budget and Policy Priorities makes clear, that didn’t happen.

Instead, the top 15 companies that benefited from the 2004 tax holiday fired over 20,000 U.S. workers while increasing their dividends to shareholders. In short, they used the tax holiday to line their own pockets.

There’s no reason to expect anything different this time. A recent report from Citizens for Tax Justice shows that 10 corporations would get a combined $82 billion tax break from Obama’s proposal. Apple, Microsoft, and Citigroup would receive the largest benefit.

To Obama’s credit, his proposal is slightly tougher than the 2004 deal. He’s calling for a mandatory tax on the entire $2 trillion and tying it to further corporate tax reforms.

But his proposed tax rate for repatriated profits is only 14 percent — less than half the current regular rate of 35 percent. And since this is just Obama’s opening bid, you can bet that it’ll be even lower after some negotiating.

In a demonstration of bipartisan support for the idea, Senators Barbara Boxer and Rand Paul have introduced legislation that would link a tax holiday to infrastructure spending. Their bill isn’t linked to broader tax reforms, makes compliance voluntary, and proposes a measly 6.5 percent rate.

Worse still, according to a congressional study, the plan would bleed revenue badly over the long run. That would prevent any uptick in dedicated infrastructure funds.

The need for increased infrastructure spending is unequivocal. The American Society for Civil Engineers, for instance, gave the United States a D+ on its most recent infrastructure report card. The group estimates that it would take $1.6 trillion in new spending over the next five years to get it up to code.

Meanwhile, many profitable global corporations like Verizon and GE pay absolutely nothing in federal taxes. Corporate income tax currently makes up just 10 percent of all federal revenue — down from 33 percent in 1952.

A better proposal would close loopholes for both corporations and America’s super-rich and spend some of the extra money collected on infrastructure.

Closing offshore tax shelters is a great idea. Giving a major tax break to the corporations that built them is not.

Josh Hoxie is the director of the Project on Opportunity and Taxation at the Institute for Policy Studies,

Cross-posted from Other Words.

Photo: Tobym via Flickr

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  • Dominick Vila

    “Marooned” dollars involve more than just corporate profits stashed away to avoid paying Uncle Sam. The same is true for the wealthiest members of our society. Wealthy Americans have been depositing part of their assets and earnings in Swiss bank accounts, in the Cayman Islands, and in other tax shelters for decades, and have been getting away with it.
    Taxing wealthy cheaters is long overdue, and doing so would definitely increase government revenues and help us invest in desperately needed infrastructure repairs and modernization. However, we need to rely on more than just that to modernize our aging infrastructure, if the goal is to raise our standard of living and be able to compete on the global stage. Many Americans are under the false impression that our infrastructure is second to none. Nothing could be farther from the truth. Our rail system, public transportation, power grid, ports and airports, dykes to protect coastal cities and towns, and development of salt water conversion plants, among others, are embarrassingly behind other industrialized nations. We must invest in infrastructure, and the sooner we do it the better.

  • underledge

    Our bought and paid for Congress is NOT about to bite the hand that feeds it!

  • jointerjohn

    Complete tax reform is the only solution. The only way to get there is a change in campaign financing. The only way to get that is with a change in the formulation of the SCOTUS and the only way to get that is with a democratic president in 2016. and it must be one that can be squeezed right away to commit to putting forth SC nominees that are not corporate whores. The currently leading prospect for POTUS is unlikely to do that, at least not now. Rather than make the road to the democratic nomination a slam dunk, this is what should be demanded.

  • Alvin Harrison

    OMG…sanity prevails.

  • Eleanore Whitaker

    What are you all so worried about? Has US history taught you nothing? Pick up an unbiased US history book (if the right wing has not had them all destroyed) and you get a clear picture of what has transpired in government courtesy of the Tea Party, the Koch billionaires and the GOP who panders most to their campaign contributors.

    At no point in US history have Americans fallen for the biggest lie of the 1%: “We are entitled to wealth.” Followed by the 2nd biggest lie: “We owe nothing to those who helped earn our wealth or the government we used to become wealthy.”

    Wake up people! If you know nothing about the GOP, learn this all to secretive tactic: “Take control by forcing the opposition to believe they lost the war before the war begins.”

    So, what they do is get their 5 biggest billionaire media moguls to publish over and over and over, ad infinitum, ad nauseum, that the GOP is in control. The GOP is going to win the 2016 election. The GOP is going to make all the rules. The GOP is the only voice of government.

    They shove their battle strategies onto the 99% making all of you believe you have NO choice but to raise the white flag of surrender. Are we a wuss nation? Obviously, anyone who falls for the “surrender before the battle is waged” GOP strategy has already handed the government to the GOP on a silver platter.

  • Whatmeworry

    There are many tax dodges that need to end . From Media Matters, NPR, NAACP, LaRaza lets not stop at business

    • Daniel Max Ketter

      Well I know all about dodging taxes. Claim disability and retire early; it worked for me God bless our unions.

  • Whatmeworry

    There are many tax dodges that need to stay . From Media Matters, NPR, NAACP, LaRaza lets not stop at business

  • 14hei

    All of us who do not have off-shore bank accounts, know that the tax structure needs to be changed. The only way that is going to happen is if we elect individuals who realize that it must be done and have a fair and logical plan to do it. We have to not be fouled by a flood of advertising from those that want to shelter their assets from taxes. This is why it is so important to overturn Citizens United. We have to remove the flood of money into our elections. This will only happen if we get involved in how we are being governed. An work to elect individuals that will fight for us. For if we do not, I fear for the future of our democratic republic.

  • Kurt CPI

    Two points. One, whatever repatriation doesn’t do, it does inject capital – debt-free capital – into the domestic economy. Two, 14% is a lot more than 0%, which is the current tax rate for those expatriated funds.
    Repatriation is only part of the equation. Once permitted to skate on a 1/2 price tax bill, future offshore operations and holdings should be taxed at a higher rate than domestic profits. The combination will provide funds for domestic investment plus incentive to do so. The alternative is the gradual draining of US assets and the eventual selling off of America.

  • jamesowens

    curious as to what % is kicked back to those voting for the breaks.

  • itsfun

    If companies lose their off shore tax shelters, will they just move out of the US?