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Will Congress Be Duped Again On Offshore Taxes?

Will Congress Be Duped Again On Offshore Taxes?

Like a savvy bargainer on a used-car lot, big multinational corporations have mastered the art of feigning indifference and walking away.

What they walk away with is their profits, stockpiling them abroad where they legally remain untaxed until returned to the United States. Then these corporations threaten to keep the cash offshore permanently unless Uncle Sam gives them a deep discount on their tax rates.

It’s a timeworn, but effective, trick. While the rest of us are stuck paying the sticker price, Congress is considering a special deluxe tax rate for these giant corporations.

Congress last fell for the old “walk away” in 2004. And the American people got burned.

That year, legislators gave 843 giant firms an 85 percent discount on offshore profits they “repatriated.” This reduced their long-term tax bills by about $100 billion.

Legislators opted for this one-off revenue bump in part because they believed, naively, that the companies would create U.S. jobs with the repatriated funds. They even called the tax break legislation the “American Job Creation Act.”

Like new owners of a bargain basement Beemer, though, the companies basically squealed their tires and sped away. Rather than hiring more workers, many simply used the money to boost shareholder dividends and executive pay.

Meanwhile, the profit-shifting revved up again, as firms maneuvered to create leverage for further discounts.

Big pharmaceutical companies, which are particularly good at tax-dodging tactics like registering their patents in tax haven countries, were some of the biggest abusers of the 2004 tax break.

Pfizer, for example, repatriated $40 billion to take advantage of the discount. Instead of boosting jobs, the drug company laid off more than 58,000 employees over the next six years.

Legislators appear to have learned little from the 2004 boondoggle. Pending bills in both the House and Senate would once again offer deeply discounted rates on repatriated profits.

President Barack Obama has a slightly stronger proposal: All overseas stockpilers would pay a mandatory 14 percent rate on offshore profits they currently hold, and then 19 percent thereafter. But that’s still a huge reduction over the ordinary 35 percent corporate tax rate, giving companies a powerful incentive to continue to shift profits overseas.

A handful of corporate giants stand to reap the vast majority of benefits from this trick.

According to a new report I co-authored for the Institute for Policy Studies and the Center for Effective Government, just 26 companies account for more than half of the $2.1 trillion in untaxed profits U.S. corporations currently hold offshore. Since 2004, these 26 firms’ overseas stashes have grown more than fivefold.

Lawmakers claim that short-term revenue from a discount tax on offshore profits is needed to pay for urgent investments in public infrastructure. But if we’re serious about fixing our crumbling bridges, roads, and dams, we should start by fixing our broken corporate tax system.

The taxes Pfizer and six other drug companies currently owe on their offshore profits, for example, would be enough to fix the 1 out of every 9 U.S. bridges in disrepair. We need to insist that all U.S. businesses pay their fair share of infrastructure and other public services.

Otherwise, we’ll just be taken for a ride.

OtherWords columnist Sarah Anderson directs the Global Economy Project at the Institute for Policy Studies and is a co-author of the report “Burning Our Bridges.”

Distributed by OtherWords.org.

Photo: 401(K)2013 via Flickr

Chief Tax-Dodging Officers

Chief Tax-Dodging Officers

Republican and Democratic leaders don’t often see eye to eye on taxes.

But surprisingly, corporate tax reform looks like one area where there might actually be some potential for bipartisan action in Washington. This should be good news, since our corporate tax system is clearly hopelessly broken.

Here’s a stark indicator of just how broken: Last year, 29 of the 100 highest-paid CEOs made more in personal compensation than their companies paid in federal income taxes. That’s according to a new report by the Institute for Policy Studies and the Center for Effective Government.

Source: Fleecing Uncle Sam, an Institute for Policy Studies and Center for Effective Government report

Source: Fleecing Uncle Sam, an Institute for Policy Studies and Center for Effective Government report

Yes, it’s gotten that easy for large corporations to avoid the taxman.

This is true even for the country’s wealthiest companies. Citigroup, Halliburton, Boeing, Ford, Chesapeake Energy, Chevron, Verizon, and General Motors all made more than $1 billion in U.S. profits last year, but still paid their CEOs more than they paid Uncle Sam. In fact, most of them got massive tax refunds.

How is this possible?

While big businesses moan about the U.S. corporate tax rate of 35 percent, most of them pay nowhere near that. Between 2008 and 2012, the average large corporation paid an effective rate of less than 20 percent.

Hiding profits in tax havens is one of the most common ways large corporations avoid paying their fair share to the IRS. And indeed, the 31 firms who paid their CEOs more than Uncle Sam operate 237 subsidiaries in low- or no-tax zones like the Cayman Islands and Bermuda.

But that’s just one tax-dodging trick. Corporations have lobbied successfully for a plethora of other tax loopholes and subsidies.

Boeing, for example, has figured out how to double dip in the Treasury’s pool.

The aerospace giant hauled in more than $20 billion in federal contracts in 2013. According to Citizens for Tax Justice, taxpayers also picked up the tab for $300 million of Boeing’s research expenses last year through a tax break that Congress is now considering making permanent.

When tax time came, Boeing got $82 million back from the IRS, despite reporting nearly $6 billion in U.S. pre-tax profits. Meanwhile, Boeing chief executive Jim McNerney made $23.3 million.

Corporate tax dodging is bad for ordinary Americans — and our nation’s long-term economic health.

For example, if Boeing had paid the statutory corporate tax rate of 35 percent on its $6 billion in profits, it would’ve added an extra $2 billion to the funds available for public services. That sum would’ve covered the cost of hiring 2,775 teachers for a year.

Shirking taxes may boost the bottom line in the short term, but in the long run it erodes the economic infrastructure businesses need to be competitive.

Unfortunately, the current political rhetoric has little to do with cracking down on corporate tax avoidance.

Republicans are hooked on corporate tax giveaways. And President Barack Obama has suggested that he’s ready to reward corporations for stashing money overseas by giving them deeply discounted tax rates on their profits if they’ll just agree to bring them home.

Both of these positions are based on the unfounded claim that smaller corporate tax burdens translate into more good jobs.

In a Hart Research poll of voters on election night, only 22 percent favored taxing corporations less. In the same poll, less than 30 percent wanted Congress to make tax cuts a higher priority than investments in education, health care, and job creation.

The American people have their priorities straight. They deserve leaders who do too.

Sarah Anderson and Scott Klinger are the co-authors of “Fleecing Uncle Sam,” an Institute for Policy Studies and Center for Effective Government report. IPS-dc.org

Cross-posted fromOther Words

Photo: Tobym via Flickr

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