A huge, huge giveaway of tax money to giant corporations is rolling down the tracks at us. If it happens, this tax giveaway would be second only to the bank bailouts on the list of schemes to give money to private corporations. (Except, with the bailouts we got some of that money back.)
Giant, multinational companies owe us up to $700 billion in taxes they have been avoiding paying. Now they say they’ll let us have some of the tax money they owe us if we let them off from paying it all. For some reason, just telling them to pay their taxes is off the table.
How The Scam Works
Here’s how this particular tax-avoidance scam works. Companies that make profits outside of the U.S. owe taxes on that money the same way they owe taxes on money made here. But a loophole lets them avoid, or “defer,” paying those taxes until they “bring the profits back into the U.S.,” also known as “repatriating” the profits.
The idea behind letting them defer taxes is that the companies might need to invest in things outside the U.S. that make them even more money later. This is a win-win for all of us because American companies making more is better for us and means even more tax revenue later.
But many companies have started scamming on that deferral loophole by just keeping profits outside the country, period. They’re not using it to invest, they’re just scamming to avoid taxes. Even worse, many companies are inventing all kinds of ways to make it look like profits made here are made outside the country.
This scam of moving profits out of the country has gotten so bad and has been going on long enough that more than $2 trillion is now held outside the country. At the top 35 percent tax rate this means up to $700 billion in taxes already owed are being kept from use by We the People. Even worse, this gives these scamming companies a financial advantage over good, patriotic companies that pay their taxes.
Pfizer, For Example
Pharmaceutical manufacturer Pfizer is one of these companies that has shifted profits out of the country. It “strips income” out of the United States so they can report it as foreign earnings. Pfizer actually reports a loss in the U.S. while reporting huge profits outside the U.S. even while charging much higher prices here. To put it another way, “while 124 percent of its before-tax profits were foreign, only 57 percent of its sales have been outside the United States.”
So the outside-the-U.S. cash has piled up. According to a New York Times report, “In its most recent annual report, Pfizer reported $69 billion in foreign profits indefinitely reinvested overseas, and each year’s profits generate more cash.”
Pfizer is not alone by a long shot. The NYT report says, “for most American multinationals, a lot of income from foreign sources is really American income in disguise. Most large multinationals use aggressive transfer pricing and other techniques to strip income out of the United States.”
Now Pfizer is trying to take over a British company, AstraZeneca, in an “inversion” deal. The idea is that Pfizer changes from a U.S. company to a British company by taking over the smaller competitor. They are betting this means never paying those taxes they already owe.
Budget Deficit Extortion Deal
Republicans and the corporate elite have been working to convince the country that we’re broke because this leads to certain policy conclusions that benefit them. For years there have been well-funded campaigns (Fix the Debt, etc.) to get everyone scared about budget deficits.
So after cutting taxes for the rich and then cutting taxes for the rich and then cutting taxes for the rich and their corporations, all the while massively increasing the military budget (much of which goes to wealthy corporate contractors), they say we have a budget problem and the country is in dire straits because of deficits (caused in part by companies avoiding paying up to $700 billion in taxes owed).
Because of this supposed problem Republicans have been holding up everything the government might do to help citizens and our economy. We’ve suffered cuts in everything government does to make our lives better. They have cut education, food stamps, even cutting basic scientific research. They got rid of unemployment benefits for people out of work a long time. They even cut Meals on Wheels!
Now, after the “we’re broke” campaign these companies are pushing an extortion deal: they will let us get our hands on a little bit of the money they owe us if we let them off from paying all of it now, and don’t tax them anymore in the future. While Republicans are requiring that anything spent on We the People be “paid for,” they’ll let us “pay for” some of it if we let these companies keep hundreds of billions of taxes they already owe.
It is difficult to come to grips with the sheer audacity of this. These companies withhold paying the taxes they owe. They fund campaigns to convince us to cut back, and fund politicians that impose austerity on us. Then they say if we want some money to do a few things, let them out of paying most of what we owe.
Pay For Infrastructure?
In June there is going to be an infrastructure fight in the Congress. Our infrastructure is in dire straits and we have to start paying to maintain it. This is the right thing to do, the country needs it, we need the jobs. A modern infrastructure will boost our economy. But there is going to be a fight over how to “pay for” it.
Never mind that fixing up our infrastructure is an investment that pays for itself. First, the jobs this creates move people off of “safety net” programs, get them paying taxes again, stop foreclosures and help local economies. Second, all of the companies involved and their suppliers are boosted and they are paying taxes again. Third, when the infrastructure is fixed up, that boosts our economy for decades and that boosts jobs and increases tax revenue.
But now that people are demanding that Congress start fixing up our infrastructure, the big companies see an opportunity. There is a $2 trillion pot of corporate cash being help outside the country, representing up to $700 billion of tax money. Companies are using this as a way to extort a few (or more) hundred billion dollars from the public. “Hey, I know where there is a big pot of cash you can tap.”
There are two ways to tap that cash.
The first, of course, is to tell these companies to just pay their taxes. This would bring in up to $700 billion that we can use on infrastructure. The ripple effects from all of the future economic growth – the job creation and business-boosting – will boost tax revenues into the future.
The other is to give in and let these companies off the hook for the taxes they owe, and allow a “repatriation tax holiday” or various other schemes that let them bring the money back without paying all of the taxes they owe.
Democrats are correct to say that we should be spending big time on infrastructure, and that we should pay for this in an aggressive way by collecting the tax money these companies owe us anyway. Democrats should go to the public and make the case for spending on jobs, not on big corporate giveaways.
It’s our money. These companies already owe these taxes.
A Simple And Fair Solution
I’d like to propose a simple and fair solution to this deferral problem. Congress should impose a 5-percent-per-year fee on deferred income. Let them keep the money out if they say they need to, and let them defer paying their taxes. But just have them pay a modest 5 percent fee to do it. If a company has a good reason for keeping profits out of the country, a 5 percent fee won’t be a problem.
This would bring in $100 billion a year all by itself if they decide to keep the $2 trillion out.
This should not be a deductible fee; it should be 5 percent per year. That way, they pay all of the taxes they owe when they do bring the money back. If they keep the money out for seven years we would collect the full 35 percent owed in taxes and they’d still owe 35 percent on the money they bring back.