the right’s smoke & mirrors scams about corporate tax "reform"
by Linda Beale
the right’s smoke & mirrors scams about corporate tax “reform”
One could get a pretty gloomy picture of the state of Social Security, and the need to “reduce entitlements” while at the same time hearing about the (faked) urgency of cutting corporate taxes in order to give our US multinationals an edge in global competition, if you pay much attention to the GOP presidential candidates talk and listen to their echo chambers in the right-dominated GOP factions in the House and Senate and their marketers in the Koch etc. funded propaganda tanks like the misnamed “Americans for Prosperity” (should be “Americans for prosperity for the have-mores”).
These same right-wing politicians and funders were gung-ho for two budget-busting manuveurs under George W. Bush–outrageous tax cuts of primary benefit to the rich (such as the gradual reduction of the estate tax to its one-year repeal in 2010 and its rebirth in 2011 at an absurdly low rate with an equally absurdly high exemption amount) and outrageous spending for more and more militarization of the US society (wars of choice in Iraq and Afghanistan, where hundreds of thousands have died but little in the way of lasting peace has been gained, and a gigantic “homeland security” apparatus that has eroded the civil rights of US citizens, including allowing one to be targeted and assassinated on solely the say-so of the executive branch without any of the due process protections supposedly guaranteed by our pre-Bush constitution). Cheney of course famously quipped that deficits don’t matter any more, when he was helping to push the $1.3 trillion 2001 tax cut that would give him and George W. huge tax cuts in the tens of thousands for 2001 alone. Then there was the 2003 tax cuts aimed especially at relieving the have-mores of taxes on the money their money earned (cutting dividend rates on corporate stock to the same low rates as net capital gains) and the 2004 tax cuts aimed especially at giving multinational corporations the many tax breaks they’d been lobbying for avidly for the last two decades, along with a “repatriation holiday” that allowed the ones who’d worked most assiduously to avoid paying US taxes on their profits from intangible intellectual property rights to spend the money on outsize managerial compensation and shareholder stock buybacks while firing regular employees with very little or even no tax consequences.
Now, the right wants to repeat all of that.
Dave Camp, minion of multinational corporations, is crafting a give-it-all-away package of so-called corporate tax reform that may cut back on loopholes but in the process will lower rates and allow multinationals to offshore money-making enterprises, with the results that even fewer multinationals will actually pay any federal corporate income taxes. (The text of Camp’s release about his corporate tax “reform” proposal is appended at the end of this posting). Camp calls for a 25% rate and a territorial tax system that would cut corporate tax revenues even further. The Joint Tax Committee has noted that cutting all the loopholes in a base-broadening attempt would allow lowering the corporate tax rate only to 28%. See Wall Street Journal report on the JTC report.
All of this is rationalized by the right as necessary to help US multinationals “compete” on the global stage.
You’d think that US corporations were slaving away under incredibly heavy US federal income tax burdens, but there’s no truth to that at all. Most of the griping about the corporate tax talks solely about federal statutory rates and not about either the effective tax rates (what corporations actually pay) or about the lack of most of the other kinds of corporate taxes paid by corporations housed in other developed nations (much higher Value-Added Taxes and excise and transfer taxes).
In fact, most US multinational corporations are not heavily taxed at all, and most of the smaller US corporations zero out their profits with shareholder “salaries” (deductible) and other often easily manipulated expenses (personal expenses of ‘family farmers’ whose homes and cars and everything else are “owned” by the family farm corporation, etc.). Citizens for Tax Justice has for several years looked at publicly reporting US corporations’ fiscal statements on taxes and profits to tell the real story about profitabilty and taxes. It’s not the story the Chamber, the National Association of Manufacturers, or the anti-tax, anti-government funded groups or the Koch brothers want known. But it’s the facts. CTJ’s most recent study makes clear that US multinationals have no trouble competing due to taxes. See the report: Corporate Taxpayers and Corporate Tax Dodgers, 2008-2010.
As Andrew Leonard reports today, the study shows that 37 of the country’s largest corporations paid zero taxes in 2010.
In 2010, Verizon reported an annual profit of nearly $12 billion. The statutory federal corporate income tax rate is 35 percent, so theoretically, Verizon should have owed the IRS around $4.2 billlion. Instead, according to figures compiled by the Center for Tax Justice, the company actually boasted a negative tax liability of $703 million. Verizon ended up making even more money after it calculated its taxes.
Verizon is hardly alone, and isn’t even close to being the worst offender. Perhaps most famously, General Electric raked in $10.5 billion in profit in 2010, yet ended up reporting $4.7 billion worth of negative taxes. The worst offender in 2010, as measured by its overall negative tax rate, was Pepco, the electricity utility that serves Washington, D.C. Pepco reported profits of $882 million in 2010, and negative taxes of $508 million — a negative tax rate of 57.6 percent.
Andrew Leonard, America’s Corporate Tax Obscenity, Salon (Nov. 3, 2011). Four industries–finance, utilities, oil/gas/natural resources and IT– reap huge windfalls from the current corporate tax code. Those windfalls that aren’t likely to be eliminated in any “reform” that passes the right-wing Congress–just look at the current lobbying for maintaining the “active financing” exception for banks’ passive income, an exception that allows banks to defer taxation on their passive earnings, unlike most other industries.
There’s no way that a territorial tax system (that allows US corporations to continue moving active businesses offshore tax free and moving patents and other rights off shore to ensure that the income from the rights aren’t taxed in the US) combined with incredibly low rates will raise an appropriate amount of income from corporations. It is a giveaway to the corporations that think they have now bought Congress. At the same time, as the CTJ report authors note, most of these reform schemes actually will allow corporations to move even more jobs and businesses offshore. If we really wanted to enact good corporate tax reform, we’d remove the loopholes favoring big industries like Big Oil, get rid of the accelerated depreciation allowances that let companies expense long-term investments, require an “exit tax” of ordinary income on all appreciated assets and untaxed earnings whenever a corporation restructures itself into a foreign company or moves its active business assets abroad, and otherwise tighten up the corporate tax rules to ensure that corporations pay a fair share in taxes.
It is up to the people to show that they haven’t loss the power to take control in our democracy, but given the lack of understanding of tax and fiscal issues in this country, and the deep pockets of corporations to fund the Chamber and other group’s misleading information and distortion of facts on these issues, it is questionable whether US democracy can save itself.
Appendix: Camp release about proposal for corporate tax “reform”
Today, Ways and Means Committee Chairman Dave Camp (R-MI) unveiled an international tax reform discussion draft as part of the Committee’s broader effort on comprehensive tax reform that would lower top tax rates for both individuals and employers to 25 percent. In addition to rate cuts, the plan would transition the United States from a worldwide system of taxation to a territorial system – a move virtually every one of America’s global competitors has already made.
Camp unveiled the draft legislative language with a specific request – that employers, academics, practitioners and workers provide comment and add their voices to the legislative process.
Commenting on the release of the proposal as a part of his overall approach to comprehensive tax reform, Camp stated, “Instead of having laws on the books that encourage hiring U.S. workers, our outdated international tax system encourages employers to keep profits and jobs outside of America. If we are serious about creating a climate for job creation, now is the time to adopt tax policies that empower American companies to become more competitive and make the United States a more attractive place to invest and create the jobs this country needs.”
The Ways and Means discussion draft would:
– Reduce the corporate tax rate to 25 percent – bringing it in line with the average of countries in the Organization for Economic Cooperation and Development (OECD). The Committee continues to examine base broadening measures that will replace the revenue foregone by reducing the corporate tax rate, so these measures are reserved in the discussion draft for future release.
– Shift from a worldwide system of taxation to a territorial-based system. The new plan:
* Exempts 95 percent of overseas earnings from U.S. taxation when profits are brought back to the United States from a foreign subsidiary.
* Includes anti-abuse rules to ensure companies do not avoid paying their fair share of U.S. taxes.
* Frees up existing overseas earnings to be reinvested in America after they are taxed at a low rate in line with current repatriation proposals.
* Makes American companies more competitive on the global stage with little or no impact on the federal deficit.
In advocating the need for international tax reform, Camp cited several reasons why current U.S. tax policies are putting American employers and workers at a competitive disadvantage:
– America will soon have the highest corporate tax rates in the industrialized world: Only Japan has a higher corporate tax rate than America, which has a combined federal-state rate of 39.2 percent – and Japan has already indicated its intent to lower its rate.
– Our “worldwide” system of taxation is a remnant from the Cold War: While it has been 25 years since Congress reformed the tax code, it has been almost 50 years since it undertook a bottom-up review of our international tax laws. In other words, our international tax rules were written when the United States accounted for 50 percent of the global economy and had no serious competition from others.
– American employers face double taxation compared to their foreign competitors: As a result of our “worldwide” system of taxation, when U.S.-based companies try to bring profits back home, they must pay U.S. taxes on top of the tax they already pay in the foreign market U.S. tax laws encourage investing in a foreign country instead of bringing profits back home: Because U.S.-based employers face additional taxes if they bring their overseas earnings back to invest in the United States, it is cheaper for these companies to reinvest profits overseas instead of creating jobs here.
– America is losing ground: In 1960, U.S.-headquartered companies comprised 17 of the world’s largest 20 companies – that’s 85 percent. By 2010, just six – or a mere 30 percent – U.S.-headquartered companies ranked among the top 20.
– Our foreign competitors are actively reforming their tax laws: Other countries are actively reforming their international tax codes – giving employers lower rates and moving towards a territorial tax system. Countries like the United Kingdom, Canada, and Germany, have recently lowered their tax rates to spur job creation and economic growth. Yet, America is sitting on the sidelines doing nothing. The United States cannot sit back and watch jobs go overseas because the tax code provides such perverse incentives.
originally published at ataxingmatter
Create a 0% Corporate Tax Rate, but with the hitch is you cannot make any political donations of any kind.
But, but, but, just this morning I heard on CNBC that the real problem is that people are passing up $60K a year jobs to collect unemployment and work odd jobs for cash (and no taxes). Unfortunately, people get what they pay for. The corporate and monied interests pay dearly for the politicians who give them all the tax breaks because they are the “job creators” don’t you know–at least the creators of the GOP members of Congress’ jobs. Thanks Linda, your intelligent discussion will be discarded as more socialist propaganda and too many Americans will believe that.
“Americans for prosperity for the have-mores”
‘Prosperity for Prosperous Americans’
0% corporate tax rate, 90% top bracket for the individual tax rate.
Conservatives claim that businesses only hire when they have lots of money, so you have to convince owners to leave the money in the business, right?
Another aspect of ‘tax refrom’; closing loopholes could be used to shore up the federal budget, but Republicans want to use that revenue to reduce the top rate.
Part ‘B’ of the loophole kabuki is that once the top rates are lowered, Republicans will be quite happy to work with lobbyists to put all of those loopholes back in the code.
How pathetic, poor American corporations can’t compete if they have to pay taxes the way other nations corporations do.
Any statistics of real corporate taxes paid compared to other international companies?
I thought taxes get paid on profit, no profit no taxes, but they get paid for not having enough profit?
i may be humor deficient here, but i guess i need to point out that “corporate” money will find its way into politics whatever the rules.
and i don’t see any advantage at all to giving corps low tax rates. they already have other advantages and if they can’t make a profit for their shareholders… and create jobs… with those advantages we the people don’t need to be subsidizing them. let the market sort them out.
people forget that all businesses have costs. taxes are just another cost. they amount to paying “suppliers” when the supplier is the government and a detailed itemization of services rendered would be very difficult to write and rather pointless. if the corps want to pay less for their government supplied services they can ask their wholly owned congressmen to buy less stuff.
but the people need to keep in mind that they need a lot of that stuff… and so do the corps, because contrary to what they tell you, the corps depend upon healthy and relatively wealthy people for their customers and employees.
frankly i think that having ALL taxes be collected from corporations would be a more efficient way to go. the corps could no doubt “pass through” the cost of taxes to their customers. that’s fine with me. the market will sort it out.
well, sarcasm, but truth.
btw you illustrate a very good reason for “double taxation.” there really is a difference between “the corporation” and “the owners”.
and you also illustrate the fallacy of taxing less to encourage businesses to invest and grow the economy. they could get the same money by paying less dividends, or buying less champagne. but, no, only taxes limit the “production possibility horizon”. workers and government may NEVER choose current consumption over “investment.” Only the rich are in a position to fine tune that choice.
thanks for this. you did slide away from further comment about “the gloomy picture of Social Security and the need to reduce “entitlements”, so let me pick up the slack
Social Security contributes not a damn thing to “the deficit” not now. not ever. Social Security has about the same effect on the economy as you not spending all of your money on Friday night, but saving a little for Sunday dinner.
As for Medicare… it’s still money that is going to be spend on medical care. It doesn’t matter whether it is passed through “the government” or private insurance companies. It all ends up in country club fees anyway. Except Medicare is the only way ordinary people have to insure that the medical care will be available to them when they are old and no longer working.
That is actually true even for the part of Medicare that is paid for out of the general fund. It’s still people paying while they are working for care they will need when they can’t work. protected by pay as you go… either formally in Medicare proper (part A) or informally in the general budget… from inflation including “medical inflation” and personal lapses in inability (or neglect) to pay.
The assault on entitlements is entirely dishonest or simply brain damaged. If there is a need to reduce costs, we need to reduce costs. It makes no sense to pretend we are reducing costs by cutting our insurance.
It was sort of sarcasm, most corporations would pay the tax and lobby for enough hand-outs to more than offset taxes paid.
But, on the other hand a 0% federal rate may allow states to charge more or less and compete for coporations to locate there – domestic companies and foreign companies. If they charge a higher rate, they can provide better services than a state that charges less. True tax and service competition. The federal governmnet really does not provide a lot of services companies use IMO, when the bulk of spending at that level is military. The fed tax struture may discourage fopreign business from moving here too. I think tax rates need to be viewed globally from a competitive standpoint. We look at it in a vacuum, and maybe we can steal business from places like Bermuda.
maybe. but ultimately corporations depend on people being able to afford what they sell. the problem is that no single corporation can resist going for the tax break, but all of them doing it, and getting it, underfunds the government and will lead ultimately to societal collapse… whatever John Galt thinks.
And what I think is that “more growth” is a disease, like cancer. Some growth is fine, and we want to always have opportunity for individual enterprise and personal freedom, but selling our souls for “more growth” is a mental disease. or did i say that already?
“The assault on entitlements is entirely dishonest or simply brain damaged.”
This goes well beyond dishonesty and there is no lack of intellect behind the effort. The assault is no less than pernicious deceipt motivated by avaricious greed. My concern is that even those that we see as our allies may in fact be the enemy. There are few Democrats making the right kind of noise. We only know that the Republicans are making all the wrong noise, but there may be little difference between their goals.
This rambling rant is hard to read, so is Linda defending the current system?
get another cup of coffee, and set your prejudices aside. the post is as well written as most blog posts. and i don’t think Linda is defending the current system.
Not defending the current system? This whole blog is about how great corporate taxes are. How evil corporations are for taking tax breaks. Why are all of yor so against tax breaks? Why not give every one tax relief? Oh, could it be that every one on this blog does not make enough money that taxes are really an issue. Have you ever considered why corporations exist. What is a corporation and why do we have them? Corporations are simply a means to cut the amount of tax a business owner or owners have to pay. If we did away with the IRS, the current tax code, all federal withholding whicch does nothing but punish production and Replaced it witha tax tha tevery one can see and all but the poor have to pay, then the punishing would end and production would increase. The bipartisan bill, H.R.25 does that and much more. When you understand it, you will demand it. I have no prejudices, only common sense.
that was a joke, right?
“I have no prejudices, only common sense.” dshipp
Using you common sense tell us, how do you suggest paying for the up keep of the armed forces and the Veteran’s Administration that has to look after all the previously armed forces? And what common sense approach do you have to pay to keep the highways, bridges and schools in working order?
We don’t need tax relief. We need a fair and balanced system of taxation put into place by government representatives who have the best interests of all citizens in their hearts and minds. The current system of representing only corporations, especially the financial sector, isn’t working out too well for the other 99%. That probably includes you.