You may have heard about corporations renouncing their US “citizenship” in order to avoid paying taxes for the infrastructure, courts, police and military protection on which they rely, the schools which their employees send their kids — even the food stamps and other government assistance which some of their extremely-low-wage employees receive.
Polling shows that the public is outraged. The President and Democrats should use this as a top campaign issue this fall.
Corporations are using a gimmicky tax loophole with the technical name “inversions” to abandon their US citizenship. They buy or merge with a company in a tax-haven country and then pretend that company is now the owner of them. They keep all the same employees, buildings and customers here but stop paying all kinds of taxes they would otherwise (or already) owe — including “deferred” taxes on non-US profits.
Part Of A Larger Problem Of Corporations Avoiding Taxes
This is just part of a larger corporate taxation problem. In addition to inversions, corporations currently are allowed to “defer” (forever) paying taxes on profits made outside of the country, so they move jobs, factories, call centers, profit centers and everything they can out of the country. Corporations pit our states and cities against each other extorting breaks and subsidies with a promise to bring jobs (which of course come from somewhere else so there is no net gain to the economy, only loss of revenue with which to fund schools, etc.) Corporate cash influences our government demanding tax breaks and subsidies.
As a result of these and other corporate tax avoidance/breaks/subsidies the corporate share of the federal “tax burden” has fallen from about 30% in the 1950s to about 10% now. Guess who has to make up the rest? (Hint: it’s you and me.)
So while there is a bigger problem than just these “inversions,” the idea of American corporations renouncing their citizenship to get out of paying for the services that they will still be using has pushed public opinion over the edge.
Polling Is Very Clear. The Public Hates This.
The polling is clear. An August poll highlighted by Americans for Tax Fairness found that “Over two-thirds of likely voters disapprove of corporate inversions, including 86% of Democrats, 80% of Independents and 69% of Republicans.”
Morning Consult breaks down this poll a little further, writing: “Disapproval was consistent despite education level. Nearly 8 in 10 respondents across all education levels disapprove of tax inversions. Those with a post-grad degree had the highest intensity of disapproval, with 47 percent indicating that they ‘strongly disapprove’ of tax inversions. This was 10 percentage points higher than other education levels.”
Other polls also show that the more general issue of corporate taxes is potentially huge for the 2014 elections.
For example, by 67% to 31% voters believe “we should end tax breaks for companies that ship jobs and profits offshore, and level the playing field for small businesses that create jobs in America.” But in July Senate Republicans filibustered a bill that would do just that.
But wait, there’s more. By 79% to 17%, voters want to, “Close tax loopholes to ensure that American corporations pay as much on foreign profits as they do on profits made in the United States.”
By 83% to 13% voters want to, “Increase taxes on the profits that American corporations make overseas, to ensure they pay as much on foreign profits as they do on profits made in the United States.”
President And Democrats Trying To Fix This
The President and Democrats are trying to do something about this, calling for “Economic Patriotism” from our corporations.
The President is proposing taking executive action to stop “income stripping” and other measures that are within the administration’s power. One idea is an executive action to “prevent companies from reincorporating abroad if they are owned by at least 50% of the former U.S. parent’s stockholders (the current threshold is 80%). He would also require that the new foreign corporation be primarily managed and controlled from abroad.”
Meanwhile in Congress, Senator Carl Levin (D-Mich.) has introduced the Stop Corporate Inversions Act of 2014 and Representative Sander Levin (D-Mich.) has introduced a companion bill. (Call or write to your Representative and Senators and let them know you support these bills!)
Blocked By Republicans
But these Democratic efforts are being fought by the Republican propaganda machine. They will be blocked by Republican filibusters in the Senate and by the Republican leadership’s refusal to allow the issue to come up for a vote in the House — because it would pass.
This effort by Democrats to do something about this is a clear contrast with Republican efforts to help these companies leave the country. It should be a major campaign plus for Democrats this fall.
Note — In the post, A Simplified Way To Tax Multinational Corporations, I wrote about a report by District Economics Group economist Michael Udell that “offered a bold new alternative that is so radically simple that even the most clever corporate tax accountant would have a hard time finding a way around its fair and universal proposition.” Simply put, we just measure what percent of a company’s sales occur in the US, and tax that same percentage of that company’s worldwide profits at the US rate. This gets rid of the data-gathering problems in getting companies to pay their fair share of taxes on their profits while they pretend their profits were made somewhere else. Also, it would apply to companies from any country, making “inversions” irrelevant. Please click and read that post for details.