Corporations are shifting more of their money overseas to avoid the taxman in the U.S. and pursuing territorial tax legislation in Congress that would further enshrine that tax evasion into law. At a conference call Monday for progressive writers hosted by the Campaign for America’s Future’s Dave Johnson, leaders of Center for Tax Justice and the Americans for Tax Fairness explained the territorial tax proposal and the harm tax havens do to the middle-class economy.
At the beginning of the call (which you can listen to in full), Johnson painted the picture of what American corporate taxation looks like these days. “Corporate tax revenues as a share of GDP have fallen to near historic lows. At 1.7 percent of GDP in 2009, the U.S. has the third-lowest effective corporate burden in the world based on corporate taxes as percentage of GDP.” He followed up describing the how the corporate tax structure sits today, “The top corporate tax rate was 52.8 percent in 1970, 48 percent through that decade, then, in the 1986 tax ‘reform’ phased them down to 35 percent, which is where the top rate is currently.”
With America facing a large deficit, in great part due to funding two wars on borrowed money, and with an estimated $1.46 trillion being diverted through overseas tax shelters, the country needs the ability to tax these profits at the corporate tax rate. Doing so would net the country another $511 billion; the equivalent of lowering the federal deficit per person by more than $1,500.
“Hundred of billions of dollars are at stake over 10 years," said Frank Clemente, the director of the Americans for Tax Fairness, “the other ATF that the right hates.” He adds, "One big loophole alone is worth over than $600 billion over 10 years. It dwarfs the [savings] that would be proposed in the chained CPI."
“Corporate profits are at a 60-year high,” Clemente continued, “and corporate share of federal revenues is down to a 60-year low. Some of these companies are paying less in taxes than you or I are paying, including companies such as GE. Companies claim that the tax rate is too high, but the effective corporate tax rate is actually around 12 percent."
According to tax haven experts at McKinsey commissioned by the Tax Justice Network, an estimated $21 trillion has been squirreled away by multinationals and the global elite in offshore tax havens. In the United States, corporations are waiting for a tax repatriation holiday to bring these overseas profits back at a 5 percent rate, as they successfully lobbied to receive in 2004. But, as Clemente said during the call, "they did not create any jobs the last time they brought these profits back.”
Clemente opposes revenue-neutral corporate tax reform, arguing for the need to raise money from corporations instead of giving them tax breaks in the name of reforming the tax code. He also opposes the territorial tax proposal, in which foreign profits are only taxed in the nation they are earned, and would not be subject to U.S. taxes.
These positions have support from the American people, Clemente said, and even some bipartisan support in the Senate, with Sen. Carl Levin, D-Mich., proposing the Cut Unjustified Tax Loopholes Act with support from former Republican presidential candidate Sen. John McCain, R-Ariz.
“The federal tax code absolutely needs reform, for corporate and individual taxes," said Steve Wamhoff, the legislative director of Citizens for Tax Justice. "Corporate tax reform needs to raise revenues as well as ending incentives for corporations to shift profits and jobs offshore. These incentives exist because the U.S. tax code allows companies to defer or delay paying taxes on profits earned offshore until they bring profits back to the U.S., which sometimes they never do. The companies have incentive to disguise their U.S. profits as ‘foreign profits’, profits that are generated in some country like Bermuda or the Bahamas, that does not have a corporate tax, in other words, a tax haven.”
Wamhoff warned that a territorial tax system would only increase the incentives to shift jobs overseas. "Right now we have a system that encourages delaying bringing profits back to the United States, but we can imagine that a system that removes the U.S. taxes completely would only encourage more offshoring," Wamhoff said. "We have proposals that end deferral, and that is what we think is the best option here. Sen. Bernie Sanders of Vermont has proposed a bill that would end the incentives to shift jobs and profits overseas.”
President Obama’s tax reform proposals leave much to be desired, according to Wamhoff. Obama does not close the door on tax deferrals, but allows them to stay on the books. The savings would be turned around to create a rate reduction to these corporations, which, Wamhoff says, “does not make a lot of sense, when we are being told we need to make sacrifices” while corporations are not being asked to sacrifice at the same rate as anyone else.
The double Irish with a Dutch sandwich sounds like a good happy-hour bar combo. In reality, it is the name used for one of the tax avoidance strategies companies use to lower their corporate rates by funneling revenues offshore. It is how corporations can complain that they are burdened with a 35 percent corporate tax rate on the one hand while actually paying a tax rate that averages 12 percent, with companies such as ExxonMobil, General Motors, Google and FedEx paying little to nothing in taxes.
Closing tax loopholes and preventing the U.S. from going to a territorial tax system would ensure that those who reap incredible profits and massive advantages from the United States would pay their fair share toward revitalizing the economy for everyone.
To listen to the full call, click here.