The weak can never forgive. Forgiveness is the attribute of the strong.
–Gandhi
Opining on the state of the Republican Party and its presidential primary frontrunner, the inimitable Charlie Pierce writes
He. Trump is the most ghastly creature ever to rise from the swamps of democracy, a lying, thieving con-man who’d steal soup if he had rubber pockets, but of course they’ll all support him in November because socialism! Dear god, it’s going to be a hoot.
Trump may indeed be the guy who would steal soup, or maybe rubber pocket liners embossed with his name, but who needs Trump when we have a corporate America that would charge us for the stolen soup? William Greider writes:
The multinationals are waiting for Congress to forgive them their debts.
That is, the US companies insist they won’t bring the money home and pay the taxes they owe until Washington pols steeply reduce the rate to bargain-basement levels. That’s tax “forgiveness” on a grand scale. What the companies also demand is a permanently lowered tax rate on their future earnings. Some leading Republicans advocate eliminating taxation of foreign corporate income entirely.
Imagine if average citizens were given this kind of discretion for their personal income tax. You could tell the IRS you regard your tax liability as unfair, so you’re not going to pay it until Congress enacts a lower rate. Don’t try this dodge in real life. They will come after you.
Many politicians are attracted to cutting a deal with the corporations because they’re in a bind of their own. Given the intense budget battles, the House and Senate often can’t even agree on how to pay for essential government projects and services. The tax-forgiveness scheme could bring home hundreds of billions in supposedly “new” revenue for those vital projects.
And just who are those multinationals?
The top 10 multinationals that would reap the largest boodle from this deal are Apple, Microsoft, Oracle, Citigroup, Amgen, Qualcomm, JPMorgan Chase, Gilead Sciences, Goldman Sachs, and Bank of America. According to Citizens for Tax Justice, these 10 collectively owe $162 billion in unpaid taxes on the $540 billion in profits they’ve parked offshore.
Elizabeth Warren is already on the job. * But Our presidential candidates should be are also on the same page. This issue is made for Bernie Sanders has filed legislation on shifting tax burdens of shore (See The Best Defense’s comment below), but and Hillary Clinton can afford to join them. has spoken publicly about inversion and profit stripping. Barbara Boxer evidently isn’t on the same page, but neither, it seems, is the press.
Not only does this issue matter across the board, it’s what this election is about. Corporations legally cheat us on tax revenue earned overseas, agree to repatriate the money if we cut them taxes for the long-term. Bernie has yet to mention this on the campaign trail. It is important that both he and Hillary do so. This is not the direction we want our country headed.
* Edited to reflect the positions of our presidential candidates.
She has already spoken quite a bit about corporate tax dodgers, particularly those that the taxpayers helped rescue over the past few years.
If she thinks she will need corporate-tax-dodger support to beat Trump.
(I didn’t say it was a good reason.)
Bernie hasn’t brought the issue up. Now that the Nation has an article on it, I think that may change. But he’s in the Senate now. I would think he should know.
Politically, there’s no way Hillary could not side with us on this issue.
It is simply not true about Sanders lacking a position on corporations stashing profits offshore in order to avoid taxes. Sanders filed legislation almost one year ago according to the US Senate Budget Committee, of which Sanders is the ranking Democrat. It is strong stuff. To quote the first graph from the Committee website:
The Corporate Tax Dodging Prevention Act would prevent corporations from sheltering profits in tax havens like Bermuda and the Cayman Islands and would stop rewarding companies that ship jobs and factories overseas with tax breaks. The Joint Committee on Taxation (JCT) has estimated in the past that similar provisions would raise more than $590 billion in revenue over a decade.
Sanders “Corporate Tax Dodging Prevention Act” is described in greater detail on the Budget Committee web site here:
http://www.budget.senate.gov/democratic/public/index.cfm/2015/4/new-bill-to-curb-tax-dodging-corporations
by proposing a change in tax policy that would severely penalize any company that relocated overseas to avoid paying their fair federal tax obligation.
Fred Rich LaRiccia
In fact, only the United States and Eritrea do so as a matter of course. I’m not saying corporations should be excused from paying these taxes, just that Greider’s analogy — “Imagine if average citizens were given this kind of discretion for their personal income tax” — is actually standard practice in the rest of the world.
can’t afford to earn income abroad. There is a small subset of people who work outside the country, but basically tot takes capital invested overseas to earn money there.
Greider is often sloppy, but I think it is clear what he is saying, that only big corporations, and not regular people, can get away with withholding earnings from US jurisdiction as they lobby for a change in the tax laws.
Really, it’s that offshoring capital is only an option as a practical matter for these companies. Where Greider’s analogy truthfully falls apart is that what they are doing is not unlawful, whereas a private citizen who refused to pay taxes would be violating the tax code.
Greider might have said that the law in its majestic equality allows the superrich and the other classes alike to shelter income overseas.
When I lived and worked overseas, the taxes I paid there were sufficient; I didn’t have to pay any more to Uncle Sam. When I owned a few shares of Toyota stock, the tax I paid to the Japanese government on my dividend income came directly off of my Federal income tax as well.
All of which is to say that Bob’s statement that the United States taxes personal income earned abroad isn’t true across the board, not by a long shot.
Bob, the link you put there speaks to personal income taxes, not corporate income taxes. There’s a pretty good reason for the US to tax the foreign earnings of its citizens – because taxes go to support services that these people will very likely use when they come back to the USA. If they’re not coming back, then they can just renounce their citizenship (and pay an exit tax). Simple. Then they are no longer citizens; can no longer vote; and can get no privileges that comes with citizenship. They can come to the US on travel visas, and can’t stay more than 6 months here without being “illegal”.
But again, that is for people, not corporations. We have heard for years that the US is the only country that taxes the overseas earnings of its corporations, however when I tried to verify that, by looking at a PriceWaterhouseCoopers website describing international corporate taxation, all the countries I looked up say that their home countries tax them on their global income, not their local income.
And of course, if anyone uses the phrase “double taxation”, please correct them – the taxation is more of a “pay the highest rate” situation because you pay the taxes in the country where the income is earned, and then you get to take that as a credit against the taxes you owe in the USA on the same income.
I’m sure you also that when you live in one state and work in another, we have the same situation? If I live in MA and work in NH, then I still have to pay MA income tax even though NH has no income tax. And if I work in CT, I have to pay the CT income tax and then get credit for paying that on my MA tax. Should we abolish that situation on the same argument of “unfairness” that we hear with this corporate situation?
… Apple is the worst. Steve Jobs and now Tim Cook, in all their black t-shirt smugness, could have set an example by manufacturing iPhones here in their home country, providing jobs for Americans. But no. They took their jobs to China, and I for one will never forgive them for that. The fact that they are blackmailing US taxpayers is just in keeping with their corporate values. At least Goldman Sachs makes no pretense about their values, which we know is to screw the US taxpayer.
US parent corporations have foreign subsidiaries that earn income. Sometimes it’s completely legitimate (a US company creates a foreign sub to operate its brick and mortar foreign stores in a very similar manner to its US operations) and sometimes it’s questionable (a US company creates a subsidiary in a 3rd world country to manufacture its products and pays it a huge mark-up to shift income from the US to the foreign sub). The current Internal Revenue Code creates a disincentive to bring the foreign profits back into the US (via a dividend from the foreign sub) where the money could be spent here on ‘desirable’ stuff like US based R&D, expansion, paying more to US workers. So instead the profits are trapped in the foreign sub and then reinvested in that foreign country. The issue that some candidates have brought up is removing the disincentive to repatriate the foreign income via a dividend. Congress has done this in the past through a limited waiver of the disincentive. The difficulty arises because it benefits both the legitimate foreign income earners and the questionable foreign income earners. And obviously my two scenarios above are extremely simple, but in reality there are thousands of permutations that make it very difficult to determine the good guys from the bad guys in this area.
So the profits can just be parked in that foreign entity. That is the crux of the point of the plans to “bring back” this income at a lower rate.
Right now if makes sense for Google to borrow money cheaply when it needs it, rather than bringing it back. In theory, it could be used also for dividends, which would get US taxation on the corporate profits and taxation on the income to individuals. Instead the income remains in the corporation and reflected in the value of Google stock. It’s like being in the bank.
Any plan that is meant to be punitive is unlikely to work. The tax skills of the corporations and the range of international possibilities is just too much for the IRS get their arms around.
Also consider that the US marginal tax rate of 35% is one of the highest rates in the world, so the foreign tax credit is not going to make the company whole. A comment above talked about paying at the highest rate, except that highest rate will almost always be the US rate which furthers the disincentive.
but there’s no “just make them” solution. Twenty years ago it was hard to find the talent and infrastructure the US offered. Now almost anything (like advanced R&D or manufacturing) can be done in a myriad of places.
Sure, and if we allow companies to book their profits in the countries they manufacture in rather than the country they are incorporated in, that gives them much incentive to manufacture outside the USA.
If they pay the same rate either way, then there is no extra incentive to move jobs.
It seems like a relatively simple rule change could be made here; instead of allowing a corporation to defer paying taxes on its overseas income (until it “brings the money to the US”), make the taxes due immediately. Voila, there is now nobody “keeping the money outside of the USA”.
and what would you look for?
Have you every done business in Brazil? It’s hard enough for a company to know itself if it’s making money there.
You could set up entities in 87 countries and the IRS would never be able to figure it out. The company could show no profits or a loss in most of them. That brings another factor- if you’re taxing earnings then you’d have to bring losses back. Also note that you’d be applying IRS code to all these foreign operations as well. A huge burden. Would you send IRS auditors to these countries? Another complication as they’d need to speak the local language.
It would eliminate the incentive to keep the profits in the foreign sub, but it would also incentivize corporations moving their headquarters outside the US if the US were to tax their full worldwide income at the US 35% rate even when earned in a country with a lower tax rate.
Then you also need to do something about Tax Inversion
Instead of moving the manufacturing outside the US, they also move the legal domicile outside the US. After inversion, they would only owe taxes on US profits.
Maybe it is time to change our laws so that being a corporation incorporated in the US has some benefits to a corporation incorporated outside the US?
We do this for people.
profit stripping? (This is a question, not a retort).
taxed in that country. Ireland is 12.5%. Bermuda is 0%. Profit stripping (or earning stripping) is ridiculously common and impossible to police. Note that it’s even possible to reduce taxes in the US. Let’s say you have profitable operations in a taxing municipality (Philadelphia is one). You call it a division and lump some money losing operations from elsewhere in the country in with it and soon the Philly operations not profitable anymore.
Here’s an online definiton
I hear a lot of reasons why we can’t tax multinational corporations, because they are just too savvy to be taxed.
So what is the alternative? They are competing with local companies who cannot avoid taxes in the same way. Should we eliminate all corporate taxes altogether?
Are both paying the same US taxes on their US operations. This discussion is how the US should tax companies on foreign operations. There are legitimate policy questions on whether and how the US should tax this income. I don’t see how discussing those question leads to the conclusion that we should “eliminate all corporate taxes altogether.”
Eliminate the corporate income tax, and tax this income once, when it is distributed as a dividend, at a higher rate than the dividend is presently taxed.