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, IPS-dc.org
Cross-posted from Other Words.
Photo: Tobym via Flickr