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Should Companies Have To Pay Taxes?

Should Companies Have To Pay Taxes?

Reading companies’ annual reports to the Securities and Exchange Commission is a reliable cure for insomnia. Every so often, though, there is a significant revelation in the paperwork. Last year, one of the most important revelations came from Microsoft’s filings, which spotlighted how the tax code allows corporations to enjoy the benefits of American citizenship yet avoid paying U.S. taxes.

According to the SEC documents, the company is sitting on almost $29.6 billion it would owe in U.S. taxes if it repatriated the $92.9 billion of earnings it is keeping offshore. That amount of money represents a significant spike from prior years.

To put this in perspective, the levies the company would owe amount to almost the entire two-year operating budget of the company’s home state of Washington.

The disclosure in Microsoft’s SEC filing lands amid an intensifying debate over the fairness of U.S.-based multinational corporations using offshore subsidiaries to avoid paying American taxes. Such maneuvers — although often legal — threaten to significantly reduce U.S. corporate tax receipts during an era marked by government budget deficits.

Microsoft has not formally declared itself a subsidiary of a foreign company, so the firm has not technically engaged in the so-called “inversion” scheme that President Obama and Democrats have lately been criticizing. However, according to a 2012 U.S. Senate investigation, the company has in recent years used its offshore subsidiaries to substantially reduce its tax bills.

That probe uncovered details of how those subsidiaries are used. In its report, the Senate’s Permanent Subcommittee on Investigations noted that “despite the [company’s] research largely occurring in the United States and generating U.S. tax credits, profit rights to the intellectual property are largely located in foreign tax havens.” The report discovered that through those tax havens, “Microsoft was able to shift offshore nearly $21 billion (in a 3-year period), or almost half of its U.S. retail sales net revenue, saving up to $4.5 billion in taxes on goods sold in the United States, or just over $4 million in U.S. taxes each day.”

Microsoft, of course, is not alone. According to a report by Citizens for Tax Justice, “American Fortune 500 corporations are likely saving about $550 billion by holding nearly $2 trillion of ‘permanently reinvested’ profits offshore.” The report also found that “28 corporations reveal that they have paid an income tax rate of 10 percent or less to the governments of the countries where these profits are officially held, indicating that most of these profits are likely in offshore tax havens.”

In the political debate over taxes, conservatives often cite inversions and other games with offshore subsidiaries as proof that the U.S. corporate tax rate is too high in comparison to other industrialized countries. Yet, when all the existing tax deductions, write-offs and credits are factored in, America’s effective corporate tax rate is actually one of the industrialized world’s lowest.

With the U.S. tax code now permitting companies to use brazen tax avoidance schemes in true tax havens, the real question is more fundamental than what the proper corporate tax rate should be. Instead, the question is now whether corporations should have to pay any taxes on their profits at all?

The answer should be obvious. Companies enjoy huge benefits from operating in the United States — benefits like (among other things) intellectual property protection, government provided security (police, firefighting, etc.) and publicly financed infrastructure. Those services and assets cost money.

If the tax tricks employed by companies like Microsoft become the rationale to eliminate corporate taxes entirely, then America would allow companies to be exempt from paying their fair share of those costs. That would be a truly endless and unacceptable bailout — one given to executives and shareholders and paid for by the rest of us.

David Sirota is a senior writer at the International Business Times and the best-selling author of the books Hostile Takeover, The Uprising, and Back to Our Future. Email him at ds@davidsirota.com, follow him on Twitter @davidsirota or visit his website at www.davidsirota.com.

Photo: Oxfam International via Flickr

A Fight Over One Of America’s Most Important Waterways

A Fight Over One Of America’s Most Important Waterways

Environmental groups and Democratic legislators are pressuring New York governor Andrew Cuomo to say that General Electric must continue cleaning up the massive pollution the company dumped into the Hudson River from 1947 to 1977. Cuomo’s own environmental officials say the pollution continues to cause “ongoing contamination,” and federal officials warn that GE’s plan to end its cleanup this fall could harm the effort to restore the river’s ecosystem.

But the Democratic governor — who has benefited from GE’s campaign cash — is declining to say whether he agrees.

In comments to reporters in Albany earlier this month, the governor said he thinks the company should “follow the law and the agreements that have been made.” Under the 2002 agreement in question, GE is planning to shut down its cleanup operations at the end of 2015 — which, environmental groups claim, will leave behind at least 35 percent of the carcinogenic polychlorinated biphenyls (PCBs) the company dumped into the river during the mid-20th century.

“I know there are claims for (GE) to do more above and beyond that,” Cuomo said of the request by legislators and environmental groups. But, he added, “I haven’t really looked into that.”

Conservation groups said that unless Cuomo takes action, the cleanup of one of the nation’s biggest environmental disasters will end prematurely, leaving carcinogenic PCBs in New York’s largest waterway.

“Governor Cuomo has a crucial role to play, given New York’s role as a trustee of the Hudson River natural resource, contaminated for decades by GE’s toxic chemicals,” said Ned Sullivan, who runs the environmental group Scenic Hudson. Sullivan served as an environmental official in the administration of Mario Cuomo, Andrew Cuomo’s father. “This is a legacy issue for Governor Cuomo. He will either use his authority and persuasive powers to push GE to perform a comprehensive cleanup, or he will leave the Hudson and upstate economy damaged for future generations.”

Democratic state Sen. Brad Hoylman — who wrote legislators’ letter to Cuomo asking him to support an ongoing cleanup — said the governor’s comments will not deter the campaign to force GE to continue the dredging.

“This doesn’t change the fact that GE has only completed 65 percent of its cleanup of the Hudson,” Hoylman told International Business Times. “I’ll continue to work with my colleagues, environmental groups and local communities to make sure GE finishes its cleanup of one of our state’s most treasured natural resources.”

GE has called its operations “one of the largest and most successful environmental cleanup projects ever undertaken in the United States.” But Margaret Byrne, an official at the U.S. Fish and Wildlife Service who is the agency’s assessment and restoration manager for the Hudson River, raised questions about GE’s plan to shut down its dredging operations.

Her agency recently released a report showing that groundwater in some upstate towns remains contaminated by GE’s chemicals. Without GE’s dewatering facility, she told IBTimes, “the additional removal of contaminated sediments would be less feasible.”

While Cuomo declines to offer a clear position on GE’s cleanup efforts, he has been outspoken in his support for the company, which has donated more than $400,000 to political groups backing the governor. In recent weeks, Cuomo has offered GE $50 million in taxpayer subsidies for a planned packaging facility in upstate New York. Those subsidies were not contingent on GE removing all PCBs from the Hudson River, which inspired criticism from some Democratic lawmakers in New York state.

“Before NY taxpayers fork over $50 million, GE needs to completely finish cleaning up their mess in the Hudson,” said Sen. Liz Krueger in a tweet.

Will Cuomo listen to the criticism? Or will he stand by as a corporate behemoth refuses to remove all of its pollution from the Hudson? The governor’s answer will help determine the future of one of America’s most important waterways.

David Sirota is a senior writer at the International Business Times and the best-selling author of the books Hostile Takeover, The Uprising, and Back to Our Future. Email him at ds@davidsirota.com, follow him on Twitter @davidsirota or visit his website at www.davidsirota.com.

Photo: Patty M. via Flickr

Prosecution Of White-Collar Crime Hits 20-Year Low

Prosecution Of White-Collar Crime Hits 20-Year Low

Just a few years after the financial crisis, a new report tells an important story: Federal prosecution of white-collar crime has hit a 20-year low.

The analysis by Syracuse University shows a more than 36 percent decline in such prosecutions since the middle of the Clinton administration, when the decline began. Landing amid calls from Democratic presidential candidates for more Wall Street prosecutions, the report notes that the projected number of prosecutions this year is 12 percent less than last year and 29 percent less than five years ago.

“The decline in federal white-collar crime prosecutions does not necessarily indicate there has been a decline in white-collar crime,” Syracuse researchers note. “Rather, it may reflect shifting enforcement policies by each of the administrations and the various agencies.”

Underscoring that assertion is a recent study by researchers at George Mason University tracking the increased use of special Justice Department agreements that allow corporations — and often their executives — to avoid being prosecuted. Before 2003, researchers found, the Justice Department offered almost no such deals. The researchers report that from 2007 to 2011, 44 percent of cases were resolved through the deals — known as deferred prosecution agreements and non-prosecution agreements.

In 2012, President Obama pledged to “hold Wall Street accountable” for financial misdeeds related to the financial crisis. But as financial industry donations flooded into Obama’s re-election campaign, his Justice Department officials promoted policies that critics say embodied a “too big to jail” doctrine for financial crime.

In a 2012 speech, for example, the head of the Justice Department’s criminal division, Lanny Breuer, said “collateral consequences of an indictment,” such as layoffs, losses for corporate shareholders and the health of an industry, factor into the Obama administration’s prosecutorial decisions.

“In reaching every charging decision, we must take into account the effect of an indictment on innocent employees and shareholders,” said Breuer.

Similarly, in 2013, Obama’s attorney general, Eric Holder, told congressional lawmakers that when it comes to banks, “I am concerned that the size of some of these institutions becomes so large that it does become difficult to prosecute them.” He said there is an “inhibiting impact” on the Obama Justice Department’s willingness to prosecute a bank when bringing a criminal charge “[would] have a negative impact on the national economy.”

Holder’s 2013 comments were foreshadowed by a 1999 memo he wrote as deputy attorney general during the Clinton administration. In it, Holder recommended that prosecutors consider “[c]ollateral consequences, including disproportionate harm to shareholders and employees not proven personally culpable” before attempting to convict corporations for wrongdoing.

In May, the House Financial Services Committee subpoenaed the Justice Department about the policy. A press release from committee chairman Jeb Hensarling (R-TX) asserted that the Obama administration was “stonewalling” in providing more details about “whether decisions are being made to prosecute or not prosecute financial institutions based upon their size.”

Prior to serving in the Obama Justice Department, both Breuer and Holder worked at white-collar defense firm Covington & Burling. Both of them went back to work for the firm again immediately after leaving their government posts.

For his part, Holder has recently defended the administration’s record of not prosecuting any individual financial executive involved in the financial crisis. He says the fines the administration has assessed against financial institutions were effective.

“People tend to undervalue what we did with the banks,” Holder told the Financial Times. “Given the nature of the penalties that were extracted, given the interactions that we had with people at the banks, with those attorneys who represented the banks, I think the cultures have changed.”

Left unexplained is how those cultures have supposedly changed when many of the same individuals who were involved in the financial crisis have managed to avoid any punishment.

David Sirota is a senior writer at the International Business Times and the best-selling author of the books Hostile Takeover, The Uprising, and Back to Our Future. Email him at ds@davidsirota.com, follow him on Twitter @davidsirota or visit his website at www.davidsirota.com.

Photo Credit: AFP/Stan Honda

Biden’s Bankruptcy Bill Could Complicate a Presidential Run

Biden’s Bankruptcy Bill Could Complicate a Presidential Run

As Vice President Joe Biden reportedly mulls a bid for the U.S. presidency, his champions portray him as a credible alternative to Democratic Party frontrunner Hillary Clinton, who faces accusations that she is beholden to the financial industry. But a Biden campaign risks confronting the scorn of one of the party’s most influential progressives, Sen. Elizabeth Warren. Though Biden has reportedly sought her favor, Warren has historically disdained, charging him with acting as a tool of the credit card industry by limiting debt relief for people grappling with financial troubles.

As a Harvard law professor in 2002, Warren published a journal article excoriating Biden for playing a leading role in delivering legislation that made it more difficult for Americans to reduce debts through bankruptcy filings. As the senator from Delaware, Biden’s repeated push for the bill — signed into law by President George W. Bush in 2005 — amounted to “vigorous support of legislation that hurts women,” Warren declared. She said “the group that will be most affected by the changes in the bankruptcy legislation Senator Biden so forcefully supports will be women, particularly women heads of household who are supporting children.”

In a separate 2003 book she co-authored with her daughter, Warren said, “Senators like Joe Biden should not be allowed to sell out women in the morning and be heralded as their friend in the evening.”

Biden’s spokesman, Stephen Spector, said: “Throughout his career, the vice president has been a champion for middle-class families and has fought against powerful interests.”

Biden earlier this month met with Warren, a Wall Street critic who is well known among Democratic voters. The meeting was widely seen as an effort by Biden to try to convince the Massachusetts lawmaker to support his prospective White House bid.

Warren’s 2002 writings, however, may stymie that effort both because her criticism was specifically targeted at Biden and because the criticism revolved around an issue that cuts to the heart of Democratic voters’ concerns over the growing political power of the financial sector.

In Warren’s 2002 review of Biden, she said the senator of 36 years played a “crucial” role in passing the bankruptcy legislation over the objections of unions, consumer groups and women’s organizations. The bill was backed by major credit card companies, including MBNA, which is headquartered in Delaware and whose employees collectively became Biden’s top campaign contributor. The firm also hired Biden’s son, Hunter, as a consultant.

Spector, the vice president’s spokesperson, asserted that Biden shaped the bankruptcy bill to specifically help women, working “to make child support and alimony a priority in the bill by ensuring continuity of child care payments.”

In her 2002 article, though, Warren accused Biden of playing an especially pernicious role in pressing the legislation, harnessing his reputation as an advocate for the interests of working women to curry the support of interest groups that would otherwise have opposed the bill. His support for the bankruptcy legislation, she said, provided crucial political cover that enabled other lawmakers to support the measure and avoid criticism from women’s groups.

“He has shielded his colleagues on both sides of the aisle from being branded as anti-women for their support of this legislation,” Warren wrote. “Senator Biden can publicly support one very visible piece of legislation on behalf of women, satisfying his duty and assuring the loyal support of millions of women. He is then free to be a zealous advocate on behalf of one of his biggest contributors, the financial services industry, and still position himself as a champion for women.”

While some Democratic activists are pining for a Biden-Warren ticket, Warren’s writing suggests such a political marriage would be more than a bit complicated.

David Sirota is a senior writer at the International Business Times and the best-selling author of the books Hostile Takeover, The Uprising, and Back to Our Future. Email him at ds@davidsirota.com, follow him on Twitter @davidsirota or visit his website at www.davidsirota.com.

Photo: Vice President Joe Biden talks about rooting out corruption as he addresses a civil society forum during the U.S.-Africa Leaders Summit in Washington, August 4, 2014. REUTERS/Jonathan Ernst