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

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