Economic Patriotism or Treason?


Respectfully submitted by Lawrence E. Rafferty (rafflaw)- Weekend Contributor

We have read in recent weeks and months about the continued movement of corporate profits by US corporations to their overseas subsidiaries in order to avoid paying taxes here on those profits.  Walgreens almost went that route recently but they decided to not do what is called an “inversion” to avoid taxes.  At least for now.

You may be wondering what the picture is all about.  The building in the attached photo is one of the main buildings on the Microsoft campus in Redmond, Washington.  And Microsoft has also been busy working on their taxes.

Microsoft, made news recently, by admitting that they have stashed $92 Billion dollars overseas in an attempt to avoid paying $29 Billions in taxes!  While Microsoft has not officially “inverted” its profits, they have done the next best thing.

Many large US corporations have complained that they have to move profits overseas because they cannot be competitive in the world market without a lower tax base.  Just how true is that claim?

“At the New York Times’ Dealbook Andrew Ross Sorkin looks at this issue in “Tax Burden in U.S. Not as Heavy as It Looks, Report Says.” Sorkin looks at a paper, “‘Competitiveness’ Has Nothing To Do With it,” by Edward D. Kleinbard. Kleinbard is a professor at the University of Southern California and used to be chief of staff to the Congressional Joint Committee on Taxation. Sorkin quotes Kleinbard:

“Despite the claims of corporate apologists, international business ‘competitiveness’ has nothing to do with the reasons for these deals,” he [Kleinbard] writes. “Whether one measures effective marginal or overall tax rates, sophisticated U.S. multinational firms are burdened by tax rates that are the envy of their international peers.”

Our tax rates are “the envy of their international peers?” Sorkin explains:

Professor Kleinbard contends that most United States multinational companies don’t pay anywhere near 35 percent. Companies paid, on average, 12.6 percent, according to the Government Accountability Office, which last measured it in 2010, by deliberately stashing piles of cash abroad.”  Crooks and Liars

If the large corporations are really only paying, on the average,  12.6% on their profits, why would they be claiming that can’t be competitive?  The only reason I can come up with is good old-fashioned Greed.  Of course, it can be argued that these corporations only answer to what their shareholders demand, better performance on their stock earnings. Do you believe that argument?

Just how does a large multinational corporation like Microsoft go about moving their profits overseas?

“Because Microsoft has not declared itself a subsidiary of a foreign company, the firm has not technically engaged in an inversion. However, according to a 2012 U.S. Senate investigation, the company has in recent years used its offshore subsidiaries to substantially reduce its tax bills.

That probe uncovered details of how those subsidiaries are used. In its report, the Senate’s Permanent Subcommittee on Investigations described what it called Microsoft’s “complex web of interrelated foreign entities to facilitate international sales and reduce U.S. and foreign tax.” The panel’s report noted that “despite the [company’s] research largely occurring in the United States and generating U.S. tax credits, profit rights to the intellectual property are largely located in foreign tax havens.” The report discovered that through those tax havens, “Microsoft was able to shift offshore nearly $21 billion (in a 3-year period), or almost half of its U.S. retail sales net revenue, saving up to $4.5 billion in taxes on goods sold in the United States, or just over $4 million in U.S. taxes each day.”

U.S. Sen. Carl Levin, D-Mich., said at the time: “Microsoft U.S. avoids U.S. taxes on 47 cents of each dollar of sales revenue it receives from selling its own products right here in this country. The product is developed here. It is sold here, to customers here. And yet Microsoft pays no taxes here on nearly half the income.” ‘  Reader Supported News

Whether you are talking about an inversion which requires the US corporation to claim that its base of operations is actually no longer in the United States, or deferral tactics like the ones used by Microsoft, the bottom line is that many large US multinational corporations have avoided paying billions in taxes.  While Microsoft has stashed $92 billion overseas, they are not the worst offender.

Apple and General Electric, which also employ offshore subsidiaries, are the only U.S.-based companies that have more money offshore than Microsoft, according to data compiled by Citizens for Tax Justice. In all, a May report by CTJ found that “American Fortune 500 corporations are likely saving about $550 billion by holding nearly $2 trillion of ‘permanently reinvested’ profits offshore.” The report also found that “28 these corporations reveal that they have paid an income tax rate of 10 percent or less to the governments of the countries where these profits are officially held, indicating that most of these profits are likely in offshore tax havens.” Reader Supported News

It seems that it is fair game for US corporations to hide from their duty as “citizens” of the United States by using legal tactics that actually harm the Treasury of the United States, while at the same time taking advantage of the infrastructure created by the state and Federal entities.  I wonder if non-corporate citizens can use the same inversion tactic to avoid paying income taxes?

Maybe we should all incorporate and sell out to a foreign “corporation” and invert our income to the home country of that foreign “owner’.   Sounds crazy, but maybe that is the next step. Maybe we can start a whole new cottage industry of foreign “corporations” designed to house individual Americans income to elude the taxman here in the United States.  On second thought, maybe not!  However, just how much do these corporate inversions and deferrals cost the rest of us taxpayers?

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219 thoughts on “Economic Patriotism or Treason?”

  1. Funny thing, The Burger King thing has been so misreported it would be funny if it were some other country.

    Burger King would not ‘save’ 10% on its taxes. Most analysts say the savings might be as high as .5%, note that IS in fact a decimal.

    Burger King is owned by 3GCapital, a Brazilian company. The Horton’s purchase is an investment in the breakfast market, not a tax dodge.

    I hate to defend companies like 3GCapital, since their singular goal is to ride their assists until they burn out, then toss them aside, but this is a sound business decision and would not only increase their overall value, but could help fill in the deficiencies of Burger King and Hortons, which in the near term would mean increased business and very likely generate jobs and additional tax revenues for the countries where these store operate.

    If you care more about your money than your country, fine. But shut up about how bad things are if you aren’t willing to pay for it.

    1. This whole Burger King thing reminded of Canada’s Top Ten things about America.

      AIN’T IT THE

      Only in America
      could we have a
      military man
      in jail
      in Mexico
      for illegally crossing the border,
      while the 10 tens of
      thousands of people
      that stream
      across our borders illegally
      >>>> are not being jailed

      “invitation” of the president!

      Canadian Top 10 List —– A MUST READ*

      Version of David Letterman’s Top 10

      Just makes you wanna shake your head in
      This is Canada ‘s Top Ten List of
      America ‘s Stupidity

      *Of course we look like
      idiots …. because we are.*

      *Number 10 *Only in America could politicians talk
      about the greed
      of the rich
      at a $35,000.00
      per plate
      *Obama* campaign
      fund-raising event.

      *Number 9 *Only in America…
      could people claim
      that the government

      discriminates against black Americans
      when they have
      a black President,
      a black
      Attorney General
      and roughly 20% of
      the federal workforce
      is black while
      only 14% of the population is black
      40+% of
      all federal
      goes to black
      – 3X the rate that
      go to whites,
      5X the rate
      that go to Hispanics!

      *Number 8 *Only in America …could they have had the two
      people most responsible for
      our tax code,
      Timothy Geithner (the
      head of the Treasury Department)
      and Charles Rangel
      (who once ran the
      Ways and Means Committee),

      BOTH turn out
      to be tax cheats
      who are in favor of
      higher taxes.

      *Number 7 *Only in America …can they have terrorists kill people in
      the name of Allah
      and have the media
      primarily react by fretting
      that Muslims might be harmed by the

      *Number 6 *Only in America …would they make people who want
      to legally become American citizens wait for years
      in their home
      countries and pay
      tens of
      thousands of dollars for the privilege,
      while they
      discuss letting anyone
      who sneaks into the country illegally just ‘magically’ become
      (probably should be
      number one).

      *Number 5 Only in America ….could the people who believe
      in balancing the budget and sticking by
      the country’s
      Constitution be thought of
      as EXTREMISTS!

      *Number 4 *Only
      in America …could you need to present a
      driver’s license to cash a check or buy alcohol, but not to

      *Number 3 *Only in America …could people demand the
      government investigate whether oil companies are gouging the
      public because the price
      of gas went up
      when the return on
      equity invested
      in a major
      U.S. Oil company
      (Marathon Oil)
      is less than half
      that of a company
      tennis shoes

      *Number 2 *Only in America… could you collect more tax dollars
      from the people than any nation in recorded history,
      still spend
      a Trillion dollars more than it has per year
      – for a total
      spending of $7-Million PER
      and then
      complain that it doesn’t have nearly enough

      *And Number 1 *Only in America …could the rich people- who pay
      86% of all income taxes – be accused of not paying
      their “fair share” by people
      who don’t
      pay any income taxes at all.

  2. LJC,
    We already have a system where the wealthy can afford to send their children to whatever schools they want and everyone else has limited choices. It’s not that we will become something you fear; we’re already there. It is unreasonable to conclude the private sector will survive operating the government business model. They won’t have the luxury of a monopoly, a reliable customer base and the predictable revenue stream that comes from being the only game in town.

    There is nothing magical that happens to humans when they enter government service. Their nature doesn’t get left at the door. There is no advanced degree that can overcome the power of that human nature. This means the only sensible defense against an entity with the power of monopoly is to tightly restrict what they can do to impact your life. And then make sure they are held accountable for the performance what little they have left to do.

  3. Paul your refusal to think outside of your personal box is showing. If you read the article you would see another study was done by gallup.
    In addition you could have clicked on the link in the article. I shouldn’t have to do all the work for you but here is the article to which Krugman’s commentary referred.

    Sadly it is a sign of the refusal to want to believe or at least check out facts if they do not line up with your personal view. This is what has made this country so much worse, the refusal, often on both sides, to want to learn anything that might shake up their worldview

    1. leejcaroll – you are just compounding the original problem. Gallup is a Democratic pollster. The NYT has been in the tank for the Democrats since FDR.

  4. John and someone else, sry maybe Jim, so you want everything privatized including schools, safety nets etc. W
    Privitize the educational system and we will be back to the days when the wealthy educate their kids but the poor can’t afford to send them to school.
    I don’t think back to the good old days of debtor prisons, the poor doing all of the scut work and being left behind is what anyone wants, hopefully, not even conservatives and tea party

  5. Karen Liberals are not against work requirement, that is a lie from the right In fact ,interestingly enough: (I tried to find liberals against work rewuirements for welfare and google spit out right wing sites heritage foundation and national review.

    “The article made its case with maps showing the distribution of dependency, but you get the same story from a more formal comparison. Aaron Carroll of Indiana University tells us that in 2010, residents of the 10 states Gallup ranks as “most conservative” received 21.2 percent of their income in government transfers, while the number for the 10 most liberal states was only 17.1 percent.”

    So it is not the ‘liberal or blue state’ using the resources including welfare that you and John and others seem to decry.

  6. Tax rates listed here are misleading. The listed percentage may or may not be an aggregate of what was paid based on world wide sales, not just US sales.

    If I ask you which US Corp paid the most taxes last year, you would reply with Exxon Mobile, who earned $78 billion world wide and paid the US government 37% or $28 billion. In reality, Exxon paid almost 50% on all sales inside the US, as per a special agreement with the IRS, in order to get a reduced rate for the overseas sales.

    Funny, the company that liberals love to hate and rail on because they are charging $4 a gallon, pays the most taxes of any US company.

    Another good example of a “special agreement” with theirs is GM, you know the Obama poster child for bailouts, who grossed $150 Billion last year and somehow managed to end up with a $25 billion dollar tax credit. Is this the kind of Corp. welfare you are talking about?

    Another great example is General Electric, BIG Obama supporter. Just after the 2008 election, GE got enough tax credits form a “Special Deal” with the IRS that they ended up paying ZERO taxes.

    Is this the kind of Corp Welfare your talking about?

    How about the $200 million in tax credits Hollywood got from Obama, contained in the $800 Billion Shovel Ready Obama Stimulus Program.

    Is this the kind of Corp Welfare you mean?

    US Companies are WAY OVER TAXED. The end result that a company pays depends on what kind of deal they make with the IRS concerning overseas profits.

    If Microsoft told the US it was moving to Canada because Canada told them that they would get a 5% tax rate if they moved, they would move!

    Microsoft is a holding company of many smaller companies setup in each country. Minimizing their tax burden is essential to maximize shareholder value.

    Jim Rose

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