As the Obama administration sends to Congress its proposal for a six-year surface transportation spending plan, a new progressive think tank report exposes the fatal flaw in how it intends to pay for the plan.
The $478 billion administration plan depends in part on $238 billion in revenue it hopes to collect by giving multinational corporations a deep tax cut – to 14 percent – when they bring back into the U.S. any of the $2 trillion in profits they are now holding overseas to escape taxation at rates of up to 35 percent. It would also establish a 19 percent minimum tax on future offshore profits.
The problem with that, says a report just released by the Center for Effective Government and the Institute for Policy Studies, is that “it forgoes forever as much as $300 billion in taxes multinational corporations already owe” and won’t do enough to close the loopholes that make offshore tax abuse possible.
Other similar proposals now circulating through Congress would leave even more money on the table. Rep. John Delaney (D-Md.) had an infrastructure funding proposal that would set an 8.75 percent rate on profits brought back (“repatriated”) from overseas and a 12.5 percent top rate on remaining offshore profits. Sens. Barbara Boxer (D-Calif.) and Rand Paul (R-Ky.) would bring the tax rate on repatriated overseas profits down to 6.5 percent.
To understand the scope of what is being lost when corporations use gimmicks such as funneling revenues from U.S. sales through overseas subsidiaries, consider these examples from the report:
● If Apple paid all the taxes due on its U.S. earnings, those taxes would cover 17 percent of the cost of needed repairs on the nation’s public school buildings.
● All of the unmet maintenance needs in our park systems could be paid for with the taxes paid on offshore profits of just one company: General Electric.
● The taxes that would be paid by the seven largest pharmaceutical firms that hold profits in overseas subsidiaries would cover the cost of upgrading all of the nation’s deficient bridges.
● If ExxonMobil and Chevron paid all of the taxes due on their offshore profits, that would cover a quarter of the cost of repairing the nation’s levees, now under stress due to the effects of climate change.
The proposals being put forth by the Obama administration and some members of Congress echo the disastrous 2004 “tax holiday” created by the Bush administration and the Republican-controlled Congress. Corporations were allowed to bring back into the U.S. money they had hoarded overseas at a deeply discounted tax rate. But the corporations used those dollars on stock buybacks, dividends and increased CEO compensation rather than investments in jobs.
“The big winners from a corporate ‘tax holiday’ would be the handful of giant U.S. corporations that dominate the offshore tax-dodge game,” the report said. Of the corporations responsible for the $2.1 trillion overseas stockpile, “we have determined that more than half of this stockpile is held by just 26 of America’s 28 million businesses. Each of these firms has accumulated more than $20 billion in overseas earnings. Together, they operate 1,086 subsidiaries in tax haven nations.”
It appears inevitable that some form of corporate tax revenue will be part of the funding mix for a surface transportation bill. The traditional funding source for the federal share of road and public transportation projects – an 18.4-cent tax on gasoline – is increasingly inadequate. A study out this week by the Transportation Research Institute at the University of Michigan suggests that even if that tax were increased – an idea with little political traction in Congress – that wouldn’t be enough, given larger trends toward less driving. “Overall, the combined evidence from this and the previous studies indicates that—per person, per driver and per household—we now have fewer light-duty vehicles, we drive each of them less and we consume less fuel than in the past,” said Michael Sivak, author of the study.
If corporate tax reform, then, is going to be an essential part of the mix of how we pay for needed investments in our transportation network and other aspects of our infrastructure, then we should be turning to such proposals as the Stop Tax Haven Abuse Act, which would close offshore tax dodges; the Corporate Tax Fairness Act, which would end the practice of corporate tax deferral on offshore profits and make all worldwide profits earned by U.S. corporations taxable except for taxes owed to foreign governments; and bills like the Stop Corporate Inversions Act, which would end the tax advantage corporations would get by merging with and shifting their corporate ownership to a foreign company, while maintaining a majority stake in U.S. hands.
Corporations rely on our public investments in transportation, education, safety, basic research and other social benefits for their growth and profitability, yet “view taxes as a cost to be managed, not an investment in America, their workforce, and an infrastructure that will create a competitive, vibrant, and innovative future,” the report said, concluding, “It’s time for Congress to change the rules.”