By Frank Clemente
Marchers in this year’s 4th of July parades in small towns across America will pass a variety of Main Street businesses: barber shops, restaurants, computer repair services. What all these small businesses have in common is that none of them use unpatriotic offshore tax dodges to avoid paying their fair share of U.S. taxes. Unfortunately, the same can’t be said for America’s multinational corporations.
Huge U.S. firms are avoiding almost $700 billion in U.S. taxes on $2.4 trillion in profits they hold overseas, according to a study by Citizens for Tax Justice. This massive, ongoing tax dodge hurts American families, small businesses and hometown communities in several ways at once.
First, it’s just not fair. Why should working Americans pay all their taxes every year, while big corporations don’t? The only winners from this tax avoidance scheme are corporate CEOs and wealthy shareholders, whose payouts are inflated with the taxes not paid. (Oh, and the lobbyists who swarm Capitol Hill convincing Congress to open the tax-dodging loopholes in the first place.) Those tax-dodge bonanzas further widen our nation’s already yawning income and wealth gaps.
Second, it deprives us of resources we desperately need to fix what’s broken in our society: potholed roads, crumbling bridges, overcrowded schools, underfunded retirements.
Here’s just one breakdown of how we could put $700 billion to use: double federal highway and mass transit spending for seven years ($470 billion); provide high-quality preschool for all low- and moderate-income four-year-olds for 10 years ($75 billion); provide two years of free tuition at community college over 10 years benefitting 9 million students ($61 billion); and increase the National Cancer Institute’s budget by 50% for 10 years ($27 billion).
Third, overseas tax dodging gives multinational companies one more advantage over small businesses and domestic corporations that actually pay their taxes. With their economies of scale, national advertising budgets and cushions of cash, big companies don’t need yet another leg up on their smaller competitors.
How do multinationals get away with it? It’s mostly due to a loophole in the tax code called “deferral.” Even though American corporations are taxed on all their worldwide earnings every year, they can indefinitely avoid paying the taxes due on overseas earnings till they bring that money home.
And here’s a key point: a lot of those profits sheltered offshore weren’t actually made there. Corporations use accounting tricks to shift domestic profits to overseas tax havens, thereby cutting their U.S. taxes while facing little or no tax abroad.
Some corporations aren’t satisfied to send their profits offshore—they send the whole company, at least on paper. In so-called “inversions,” an American corporation changes its legal address to a tax haven by merging with a smaller foreign company. The company is still operated from the U.S.—enjoying all the benefits of our country—but it stops paying its full share of taxes for those benefits.
What can be done about all this unpatriotic corporate tax dodging this 4th of July? Plenty.
First, Congress needs to make corporations pay the $700 billion they owe now on their $2.4 trillion in untaxed offshore profits. House Speaker Paul Ryan has just proposed a tax plan that would let corporations pay a fraction of what they owe – about $170 billion. That’s a huge tax giveaway for a small collection of the nation’s largest and most profitable corporations.
Second, Congress needs to reject Speaker Ryan’s plan to slash the corporate tax rate nearly in half. Cutting the corporate tax rate from the current 35% to 20% will lose $1.7 trillion in public revenue over 10 years. Because of all the loopholes in the tax code, big corporations are already paying an effective tax rate of just 14% now, according to the Government Accountability Office. They don’t need to pay less in taxes; they need to pay their fair share.
At the heart of the American colonies’ drive for independence back in 1776 was a demand for tax fairness. That demand is still alive today as we celebrate our 240th 4th of July. Through much needed reforms, working America can declare its independence from corporate America’s tax dodging.
Frank Clemente is executive director of Americans for Tax Fairness.