Washington insiders are saying that one deal Republicans and President Obama think they can make is a deal to let corporations off the hook for taxes they owe if they “bring back” the money the multinational corporations have stashed outside of the country. The deal is that this is in exchange for using some of it to fix up our country’s crumbling infrastructure. Here is why this is a bad deal.
A Huge tax Loophole
You have probably heard that big companies use all kinds of schemes to shift profits out of the country to avoid paying taxes. A loophole in our tax laws lets companies dodge (“defer”) taxes on “offshore” profits until they “repatriate” the money, meaning “bring it back into the country.” Of course it would be easy for Congress to just fix this loophole, but this is about really big money, and big money is able to keep loopholes like this from getting fixed.
Because of this loophole, corporations engage in all kinds of schemes and scams to move jobs, factories, production and profit centers out of the country or to just make it look like profits made in the U.S. are made elsewhere. We all know more and more companies are moving jobs and factories and production out of the country – this is part of the reason why. And you’ve probably heard about Apple transferring its “intellectual property” to a subsidiary in Ireland that then charges the U.S. company huge licensing fees, resulting in a lot of Apple’s profits being made by its Irish subsidiary. You might have heard that Google makes tens of billions of its profits in Bermuda. This is to make it “look like” their profits are made outside of the U.S. so they can “defer” paying the taxes they owe.
Forgiving Up To $700 Billion In Taxes Already Owed
Corporations are now hoarding more than $2 trillion “outside of the country” in subsidiaries that are often just post-office boxes in tax-haven countries. This represents up to $700 billion in taxes to the U.S. government if it were all taxed at the 35 percent rate. (Companies can deduct any taxes paid outside the U.S. from the amount owed.) It also represents money that U.S. shareholders are owed.
Now there is talk of a “deal” to let these companies off the hook for some or all of thees taxes owed, if they let We the People use some of this money – that they already owe – to maintain our infrastructure – that we have not been maintaining because these companies have been holding this money outside of the country.
However, if these companies were told to just pay the (up to) $700 billion in taxes they owe, we could use all of it to fix our infrastructure.
What Budget Deficit?
A country has a budget deficit when the amount of money brought in from taxes is less than the amount of money that the country has to spend on things like military, essential services and things that make people’s lives better. When you hear politicians complain that we have a budget deficit, you are hearing about this huge loophole that lets corporations avoid paying tens and hundreds of billions in taxes they owe.
The whole time politicians were terrifying the public about budget deficits, they were letting these corporations “defer” paying taxes they owed on profits made outside the U.S. Now they are talking about letting these companies off the hook from paying these taxes at all.
When you hear about any deals to let companies “repatriate” their non-U.S. profits keep in mind that the deal means they are getting out of paying taxes they already owe.
This Deal Rewards Bad Behavior And Encourages More Of It
Several years ago Congress gave corporations a “tax holiday” and let them bring profits back into the country with a very low tax rate. After this happened, companies assumed it would happen again. So more and more companies began to engage in these schemes and scams, moving more and more jobs and factories out of the country and thinking up ways to make it look like their profits were made outside the U.S.. The previous tax holiday made the problem much worse – and they are about to do it again.
Any deal that lets these companies off the hook for these taxes they already owe rewards these companies for engaging in these schemes and scams. It rewards them for moving jobs and factories and production out of the country. It rewards them for engaging in schemes like transferring their intellectual property to Ireland and then pretending their profits are made in Ireland instead of here. It rewards them for everything they have done to the U.S. economy and our jobs. And it encourages them to do it all even more, in anticipation of the next time they can “persuade’ government to just let them off the hook.
Who Gets This Money?
by the way, when we talk about corporate profits and shareholders this is who we are talking about:
The top 1 percent also own 50.9 percent of all stocks, bonds, and mutual fund assets. The top 10 percent own 90.3 percent. The “bottom” 50 percent of us own one-half of one percent. And this is 2007 – it is much more concentrated now.
This is who gets the money if Congress and the president do a “repatriation” deal to let corporations off the hook and bring back the $2 trillion-plus they are hoarding outside the country to avoid up to $700 billion in taxes already owed.
Tell Congress and the president “NO DEALS”; just make these corporations pay the taxes they owe.