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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@Annie:
For your information “gerrymandering” IS legal and up until the Democrats lost control of the house in 2010, Democrats were Masters of Gerrymandering and loved it.
Every 10 years, after the census is taken and any changes to the # of Reps a state gets, (Northern Democrat States lost a number of seats to Southern Republican states due to an exodus of over taxed constituents), the maps are redrawn by which ever party controls the state legislature for that state.
Our good old friend Barney Franks(D) Mass, had the most gerrymandered district in the US! He had two large sections of voters connected by a 40 or 50 mile corridor less than a mile wide!
What’s good for the goose is good for the gander.
Jim Rose
http://en.wikipedia.org/wiki/Trans-Pacific_Partnership
Arguing coke vs pepsi when they are the same thing. Both give you diabetes and rot your teeth out while many swear undying loyalty to them in spite of it.
coke vs pepsi – you have to watch the coke wars to see that they are different products although they have the same result on your health.
LOL, Squeekers@6:52. Sometimes you are so right, do that more often, ok?
rafflaw:
I oppose the tax and spend philosophy. There is almost never enough money to pay for any Liberal project, so they always come back for more. Higher taxes, higher fees. I live in Liberal CA, and I am quite used to constant and repeated attempts to impose more taxes, fees, and “revenue” collection.
For example, look at High Speed Rail. It’s now projected to cost many times more than was sold to voters.
As a fiscal conservative, Liberalism is the only political party I oppose, because when you analyze their history, it’s a “tax and spend” philosophy.
I understand what you’re saying that when corporations use legal deductions and other tax reductions strategies, the government still wants the money and leaves us holding the bag. And yet private citizens go to their CPA and ask him to save them as much money, legally, as he can at tax time, as well. And, frankly, Liberals want higher taxes no matter what.
Liberals: We tax businesses so high they seek out tax havens and leave the country entirely, taking all of their revenue with them.
Fiscal Conservatives: Well, lower taxes and use a simpler system, like a flat tax. Look at how companies flock to Ireland from all around Europe since they lowered their taxes. Cause and Effect.
Liberals: No, we’re just going to increase taxes more.
Hi Lee:
I understand the changes to the work requirement were pitched as “flexibility.” The article I linked above discussed that.
The problem is that Liberals have fought the work requirement since it’s inception. If you give Liberal states “flexibility”, and they are diametrically opposed to any work requirement, do you think they will strengthen it or weaken it? The work requirement is extremely lax, as it is.
Free NYC Pics, You’re a great addition here, and I’m sure a great dad.
@jim22
FWIW, I think the government has way too much power. Google “the federal bagpipe police” for example. But that doesn’t mean that the answer is basically no government. The reason why there hasn’t been a Libertarian president is that even Republicans are reluctant to roll Grandma off the cliff.
@Annie
I am glad you like the link!
Squeeky Fromm
Girl Reporter
Squeeky and Annie, I had no idea you both loved the state our govt is in right now. I hear a lot of whining on both sides and yet no libertarian president can be blamed for any of our mess. Hate libertarians all you want, they aren’t the ones ruining the country.
Squeeky, the description and the problem with libertarians at your link is excellent, but it pertains to not just big L Libertarians, it pertains to libertarians with a small l too. The shoe fits them both perfectly.
@Darren Smith
Thank you!!! (Plus, all the “oh what a world” stuff above was from the Wizard of Oz when the Wicked Witch was melting.)
Squeeky Fromm
Girl Reporter
How much of what government does could and should be done in the private sector? If we can’t afford to pay government workers for something that can be privatized then privatize it and you won’t need to raise taxes. It’s not as though the public sector is proving itself especially efficient and effective in the performance of the services they provide.
Help! Mayday! Comment eaten! Please! Oh, what a world! What a world! Oooooh, look out! I’m going! Oooooh! Ooooooh!
Squeeky Fromm
Girl Reporter
@john
The problem is, that the free market isn’t “free” and can’t be. There have always been regulations on business, since the days of Hammurabi, and for the same reason. People who run businesses will often lie, cheat, steal, and collude if it is to their advantage. They will underpay their employees if given the chance, and pass the costs on to society.
And the people, in general, can not logistically know all the various ways and means any given business might use to screw them over. For example, in the foreclosure crisis, the loan servicing companies had an incentive to screw over both the investors and the home owners. How many people know of this even at this late date??? Another example, is T-Mobile permitting false charges on phone bills, because they got a cut of it. Or JP Morgan and its cut of the Madoff business.
Might I suggest this link, for what is IMO the very best read on “Big L” Libertarianism, and what is wrong with it:
http://www.zompist.com/libertos.html
Squeeky Fromm
Girl Reporter
Squeeky, I retrieved your comment at 4:58.
Squeeky,
By contrast, there is absolutely NO LIMIT ON CHARITY.
People can voluntarily contribute every penny they have to charity.
People can buy all the retail products they want in the free markets of the private sector – private school, for example, like the elected officials do in D.C. and elsewhere – voluntarily pay whatever they want on the open market for private school.
Jim22,
First of all, your plan doesn’t get rid of the lobbyists who are paid to make sure a plan like yours ever sees the light of day. Secondly, without corporate taxes, you won’t have enough money to run the government. Thirdly, of course the higher tax brackets would love to see a 15% tax bracket, but that might be an increase for some.
Squeeky, what came first, the chicken or the egg?
Citizens should pay taxes. Companies are comprised of citizens.
Citizens should be taxed once.
Citizens pay tax then pay tax again through the corporate tax.
Citizens are taxed twice and more; once as citizens then again as businesses made up of citizens. Collectivists do this to confuse through complexity. Do you support clarity and transparency or obfuscation and confusion?
Citizen pay tax when they initially earn or obtain capital. Then they pay tax again when they gainfully employ the capital they already paid tax on;
all for redistribution for welfare, teachers’ unions, free/public school/college, social services, food stamps, obamacare, medicare, etc., you know – free stuff – money for nothing.
Most legitimate costs of legitimate governmental operations can be paid for by USER taxes.
The infinite FORMS of REDISTRIBUTION require enormous amounts of tax revenue causing their proponents to obfuscate and confuse taxpayers while maximizing revenue.
The American thesis was freedom and minimal government not maximal taxation to generate more and ever more spending for spending’s sake – for parasites’ sake.
If there is no limit on government, there is no limit on taxation.
It’s all a big game, isn’t it?
110 Million “Americans” are on welfare.
Alexis de Tocqueville
The American Republic will endure until the day Congress discovers that it can bribe the public with the public’s money.
Oh, thanks Nick, I was born in NYC but reside in NJ. I used to work in Midtown, but have a strong affinity still for the city and I’m actually an avid photoblogger and have a number of blogs on it. I do typepad, blogger, tumblr, wordpress, and then have the social media accounts on twitter, pinterest, facebook, instagram…..and I wouldn’t be surprised if I’m missing one. I own an e-commerce company but am a licensed attorney (MBA/JD) in the State of NJ (I passed NY but let that go). Most important I’m a dad to my twins.
Isn’t it about time to end the 17th amendment experiment and force the lobbyists to set up shop in 50 states and not just on K Street?
rafflaw – “The abuses are the lobbying that pushes for the legislation that allows for corporate welfare. A simplified tax code will not mean a thing if it is still written by the lobbyists or their paid agents in Congress.”
Simplified tax code: 0% Corporate taxes, 10% Under10K/year 15% for everyone else. Done and it took 2 minutes and I just made a whole bunch of lobbyists and IRS agents unemployed. The tax code is only complicated because you want it to be. Keeping it complicated allows the govt. to control us.
Also, make it mandatory that your employer does not remove taxes from your pay. We should have to write the check every quarter to the govt. I can guarantee that if we all had to write that check and saw how much the govt. was stealing every quarter, we would demand more from them and take elections more seriously.