In one sense, Sunday’s New York Times story on how Apple avoids paying U.S. taxes is not a surprise. In 2010 Bloomberg News exposed how another technology titan, Google, managed to lower its tax rate to a measly 2.4 percent. And, as the New York Times story notes, the techniques both Apple and Google use to lower their tax bills are now typical among global corporations.
What we need to do now is to build a national—and in fact, global—movement to shut down a tax dodge that is furthering the decay of the very communities that fostered the creation and nurtured the growth of these corporations.
This is the reason why a strategy session on a bold progressive tax plan is on the agenda for the Take Back the American Dream conference June 18-20. The work of the Occupy movement and progressive organizations have already shined a harsh light on the fact that generally corporations and the wealthy pay a lesser share of their income in federal taxes than working-class people—and in many cases, they pay no federal taxes at all. Now we need to build a grassroots consensus around doing something about it, based on a series of common-sense progressive approaches to today’s global economy.
These tax avoidance strategies being used by global corporations “have cost the U.S. for a long time, but because of the financial crisis they are now taking a much larger toll than they used to, in both the United States and Europe,” said Clark Gascoigne, spokesman for Global Financial Integrity, an advocacy organization on international tax issues.
As both stories show, Apple and Google are doing a digital version of what manufacturing companies have done for decades when they shifted production to low-tax jurisdictions, either in the United States or overseas—only with much more ease. Because high-tech firms traffic in intellectual property packaged as a series of electronic bits, these companies are able to outsmart a tax code written in the age of factories.
The bottom line of the game, however, remains the same: Get states, and entire countries, to outbid each other on how low their tax rate can be. Promise that your low tax rate will counterintuitively produce more in jobs and tax revenues in the long run, but don’t accept any conditions that hold you to that promise. When the results show that the promises were false, you can do as Apple did—release a statement to The New York Times about your charitable contributions. Or, as often happened with such companies as the ones Bain Capital invested in when Republican presidential candidate Mitt Romney was in charge, you can just take the money and run.
Members of the FACT (Financial Accountability and Corporate Transparency) Coalition, which is fighting corporate tax avoidance and evasion, was recently able to celebrate a small victory: the disbanding, at least for now, of a lobbying effort for a corporate tax repatriation holiday. That legislation would have allowed corporations that have shunted money overseas to avoid U.S. taxes to bring those funds back into the United States on the condition that they are taxed at an exceptionally low rate. The U.S. Chamber of Commerce and other corporate lobbyists have contended that this repatriation scheme would lead to a massive influx of new investment and domestic job creation. But the last time that repatriation was tried, by the Bush administration and the Republican-controlled Congress in 2004, the businesses that benefitted actually did the reverse: they laid off workers and used the money brought back into the country to pay for stock buybacks, dividend payments for stockholders and executive bonuses.
Now the business community and conservative leaders in Congress are focused on a different objective—the creation of a “territorial” tax system. Under that scheme, only profits earned in the United States would be subject to U.S. taxes. Romney favors this, as does the chairman of the House Ways and Means Committee, Rep. Dave Camp, R-Mich. Gascoigne said that would amount to a “permanent deferral” of taxes on overseas profits, and it would do nothing to change the practice of companies assigning U.S. sales and earnings to overseas subsidiaries, as Apple does to such items as iTunes downloads.
In addition to opposing the enactment of a territorial tax system in the U.S., Gascoigne said his organization supports requiring companies to disclose their income, employees and taxes paid on a country-by-country basis. That would at least draw attention to situations in which a company is claiming that a significant share of its profits are earned through an overseas corporate subsidiary that has little more than a post-office box. He also said that customs and tax officials in the U.S. and other countries should beef up their policing of transactions corporations conduct with their subsidiaries. Ultimately, viewing and treating these tax avoidance strategies as a form of money laundering—to be frank, that is what they are—would help change the race to the tax bottom that is doing serious harm to much of the world.
There is room for even bolder ideas for reforming our tax code to end the loopholes and gamesmanship that disadvantages countries around the world. It’s past time to take our fight for tax reform up a notch, with a combination of loud protest and smart proposals.
The strategy session on progressive taxation is scheduled for the first day of the Take Back the American Dream conference. Get more information and register at ourfuture.org/takeback.
Farbod Khadkhoda contributed to this post.