Big companies have discovered a loophole that lets them avoid paying their taxes. These tax-dodgers are holding $2 trillion-plus of taxable profits outside of the US, on which they could owe as much as $700 billion in taxes. What could our country do with this $700 billion it is owed? Why won't Congress just make them pay what they owe?
These companies discovered that they can move jobs, factories, labs, call centers and profit centers out of the country and by doing that they can avoid paying U.S. corporate taxes. Instead of figuring out how to get these companies to pay the taxes they owe, Congress is considering proposals to reward them and encourage more companies to do this.
The Loophole That Lets Companies Avoid Paying Taxes
Current tax laws let companies defer paying the taxes they owe on profits made outside the country until they "bring the money back." The reason for this is that some companies want to use this money to expand, leading to increased future profits. This is good for these companies and our country because they expand profits and the country gets additional tax revenue later.
But more and more companies have been cheating, using this "deferral" to avoid paying taxes at all. They are holding profits outside of the country simply to avoid taxes and not to invest and expand, even though this is not the intent of this tax rule. Some companies are even inventing ways to make it look like their US profits were made outside of the US so they can take advantage of this mistake in the tax laws. Other companies actually move jobs, factories, call centers and profit centers out of the country to take advantage of this loophole.
It has gotten so bad that U.S. companies are holding as much as $2 trillion or more outside of the country. If this were taxed at the top tax rate of 35 percent, that would mean $700 billion in taxes is already owed, but is being kept away from being used to fix bridges, improve schools, pay judges and the other things We the People (government) do to make our lives better. Also those profits are being kept away from use investing in the US, as well as from shareholders.
Meanwhile companies that keep jobs and production inside the U.S. and don't cheat on their taxes are at a clear disadvantage. They have to compete with companies that lay off U.S. workers and close U.S. factories, and get to not pay their taxes because they did that. And, of course, they have less money to use for
bribes lobbying to get what they want.
Here are the proposals currently being discussed in Congress to address this:
- Make these companies just pay the taxes they owe and stop moving jobs and factories, etc. out of the country. (No one is actually suggesting this, these companies are very powerful and spread a lot of
bribelobbying and campaign money around.)
- Let them just keep doing what they have been doing, which encourages more companies to move jobs, factories, etc. out of the country. This is the current status quo.
- Let them off the hook and have a "tax holiday" that lets off the hook for some or all of the taxes they owe. There are proposals before the Congress to do this. (Too bad for those companies that actually paid their taxes.)
- Change the tax laws so companies that move jobs, factories, call centers and profit centers out of the country don't have to pay taxes. This is called a "Territorial Tax System" and there are proposals before Congress to do this. (Too bad for companies that don't want to move jobs, factories etc out of the country, they won't be able to compete.)
Two of the proposal in front of the Congress include,
- Republican Rep. Dave Camp's House Ways & Means proposal gives a tax holiday to companies that owe taxes (#3), and then cuts taxes on profits made from moving jobs and production out of the U.S. by 90 percent (#4). Finally it would cut top U.S. corporate tax rates from 35 percent to 25 percent.
- The Partnership to Build America Act (sponsored by Sen. Michael Bennet (D-Colo.) and Rep. John Delaney (D-Md.)) would let companies that owe taxes bring home offshore profits tax-free (#3) if they use some of the money to buy bonds in an "infrastructure bank." This would be a loan, so the companies get even this money back, with interest.
Call your member of Congress and ask them to just make these companies bring those profits home and pay their taxes, period. Tell them no "tax holidays" and no "territorial tax." Just make them pay their taxes.