Key Democrats in the Senate on Thursday worked to ratchet up the pressure on Senate Majority Leader Mitch McConnell, calling for him in a letter to move forward with a long-term transportation bill before federal authorization for the program expires at the end of the month.
But one of the signatories to the letter to McConnell, Sen. Charles Schumer (D-N.Y.), has poisoned the effort by adding to the debate a corporate tax giveaway plan that would leave behind crumbs for these desperately needed transportation investments. He is winning the applause of conservatives like Rep. Paul Ryan (R-Wis.), who is chairman of the House Ways and Means Committee and is looking to move a sweeping plan to slash corporate taxes through Congress. From the progressive movement, it should be receiving loud expressions of scorn and an uprising to block it.
Schumer released his “Bipartisan Framework for International Tax Reform” earlier this week along with Sen. Rob Portman (R-Ohio). Their plan proposes to tax the estimated $2 trillion in profits that American corporations have sheltered offshore to avoid paying taxes on those profits, and use the proceeds for the Highway Trust Fund the federal government uses to support surface transportation projects.
The problem is that, as the Schumer-Portman framework makes explicit, that tax would be “a one-time transition toll charge at a rate significantly lower than the statutory corporate rate” of 35 percent. It is, in effect, a reward to multinational corporations for using schemes to shunt the profits from U.S. sales through overseas subsidiaries that are often little more than a post-office box in a low-tax country. Plus, the “transition toll” is a transition to a more permanent lowering of corporate tax rates – at a time when the federal taxes corporations pay as a share of the national economy is already at a historic low.
The group Americans for Tax Fairness calls the Schumer-Portman proposal “a big win for some of the worst tax dodging corporations in America, and a huge loss for working Americans and small businesses.” Its statement on the framework goes on to explain:
The framework fails on three counts. It appears to create a territorial tax system, under which most U.S. corporate profits earned offshore are no longer taxed here at home. This will provide huge incentives for corporations to invest overseas at the expense of U.S. jobs. It suggests a very low tax rate be paid on the $2 trillion in U.S. corporate profits that are currently offshore, much of it in tax havens, and that are untaxed here at home. This rewards companies that have been the most successful tax dodgers. It creates a giant new tax loophole, known as a patent or innovation box, which will exacerbate the current massive tax avoidance by high-tech and pharmaceutical companies.
Ryan has embraced this approach as “plan A” for paying for a long-term transportation bill, and, as The Hill reported, “declined to even lay out what the House GOP’s ‘Plan B’ might be.”
That’s par for the course for Ryan and his fellow congressional conservatives, whose primary goal is to reduce taxes on wealthy and corporations and drown in a bathtub the government services and supports that help ordinary people attain economic security. But Democrats should know better than to be co-conspirators in this game. They should be championing tax reforms that call on multinational corporations to pay more, not less, of their profits toward the infrastructure and services that support their profit-making. The United States Congress should be leading an international effort to get multinationals to pay their fair share, and end the race to the bottom that corporations have engineered by pitting countries against each other in their effort to pad their profits.
Tax lawyer and TaxAnalysts.com founder Martin Lobel explained to OurFuture.org that the Schumer-Portman framework undercuts one of the main benefits of a long-term transportation bill, which is the millions of jobs that such a bill would produce through the road and transit projects it finances. “What happens to domestic companies that have to compete against multinational companies?,” he wrote. “They will have to pay higher taxes or shift jobs and profits offshore to compete effectively. Speak about a job destroying tax proposal!”
One alternative, Lobel said, is to adopt “a form of formulary apportionment of worldwide profits so that multinationals cannot artificially shift profits to low or no tax havens.” In other words, multinational corporations would pay corporate taxes on the profits of sales in the Unites States, regardless of where the profits end up.
The Democratic leaders who signed Thursday’s letter calling on McConnell to “come forward with a plan for a robust, long-term transportation bill” were on target in their urgency, and in noting that McConnell has yet to state where he stands on how to pay for the investments we need.
But that should be the occasion to expand the parameters of the debate with bold, progressive proposals, not narrow them to conform to a conservative wish list that keeps getting shifted further and further to the right. It’s time to challenge Congress to come up with a plan to pay for a robust, long-term surface transportation in which everyone, including tax-evading multinationals, pays their share.