Every now and again, some union or perhaps its a town or some citizen group gets up set and screams (sometimes literally) that corporations are exporting jobs overseas and that what's left are the $10-an-hour jobs at Burger King and Mickey D's. Pretty much everyone agrees that a lot of jobs have been shipped over seas. Ever wonder why?
A lot has been made over the difference in the labor costs over seas as opposed to here in the U.S. While it is true that for some companies labor costs are enough to cause them to relocate overseas, it doesn't look to me like that is the whole story. Another part of the story is the corporate tax rate in the U.S. Presently it's about 35%, one of the highest in the world.
Of course there are good reasons for having one of the highest tax rates in the world. After all, the U.S. enjoys one of the highest standards of living in the world, especially if you are among the very top 5% of the wealth owners. The U.S. has the premier army, navy, and airforce in the world. And we are not above rattling the sabers and dropping a few bombs provided rationalization for doing so can be found. And oil, and “preservation of U.S. Interests”, as well as protecting “innocent civilians” provide plenty of rationalization. Health care is good, roads are okay, and we have the bill of rights.
Pardon me for my digression. It is labor costs and taxes that send jobs overseas the corporations tell us. But even those who are supposed to pay taxes do so at a reduced rate. I want to call your attention to a report by the Citizens for Tax Justice in which they explain quite thoroughly how companies are having their cake and eating it too. (Thank you Marie Antoinette)
Thus, we learn of GE, that largest of corporations, “obtained a negative corporate income tax rate on its U.S. profits. Its public filings show that it had $26 billion in U.S. profits over the last five years. Instead of paying federal corporate income taxes, G.E. actually received a net benefit of $4.1 billion from the IRS over that period.” (Citizens for Tax Justice, Mar. 25, 2011; Seeking Alpha, Wall Street Breakfast: Must-Know News: Source: Reuters, “Thirty companies paid no income tax 2008-2010: report, Kevin Drawbaugh Thu Nov 3, 2011 5:58am EDT ).
While GE may be the poster child of tax evaders, whoops, that's tax avoiders, (my bad) it is not alone. There are hundreds, nay, thousands of examples, big and small, of tax evasion, tax mitigation, tax shelters, and tax chicanery that benefit the corpoartions and their owners immensely.
In attempts to get corpoartions to come back to the U.S.and to pay at least some part of what they owe in taxes sheltered in foreign countries, Congress has authored a bill allowing for a “Repatriation Holiday”. The holiday “allowed U.S. corporations that brought offshore profits to the U.S. to pay U.S. taxes at a rate of just 5.25 percent instead of the normal 35 percent. Corporate leaders claimed they would use the money brought back to create jobs, but several empirical studies found that the holiday did not lead to job creation, and many of the companies that benefited actually reduced their U.S. employment. The money was largely put towards stock repurchases, effectively putting it in the hands of shareholders.” (Citizens for Tax Justice, Mar. 25, 2011). That was in 2004 under the Bush administration. Remember how our deficit balooned?
In 2009, Sen. Barbara Boxer offered an amendment to provide another repatriation holiday. Thank goodness the measure failed 42 – 55 as a majority of senators concluded that the 2004 holiday was a corporate giveaway that enriched shareholders without creating jobs.
Even the U.S. Chamber of Commerce realized the repatriation holidays were a laugh. The U.S. Chamber of Commerce's own tax analyst, Martin Regalia, a senior vice president for the Chamber said there was no way to direct corporations to spend money in any given way such as creating jobs here in the U.S. Instead, he reasoned that getting any of the money back into the hands of wealthy Americans was good for all Americans. After all, it's likely they will spend some of that money somewhere in the local economy – or not.
Do you recognize the argument? It's the trickle-down theory or the rising tide lifts all boats. While the repatriation holiday has been roundly discredited, there are still some corporations who would like another round of it. Among them are some big names: Adobe, Apple, Cisco, Google, Kodak, Microsoft, Pfizer, Oracle and others.
Guess what? It's not just Republicans that are being tapped to help out in getting this tax boondoggle through Congress. According to a Business Week article some of the Obama team are also in on the flim flam.
The team's chief communications strategist is Anita Dunn, the Democratic media consultant who served as President Barack Obama's interim communications director during his first year in office... The lead lobbyists are former Representative Jim McCrery of Louisiana, who was the ranking Republican on the House Ways and Means committee, and Jeffrey A. Forbes, the former chief of staff to Senate Finance Chairman Max Baucus (D-Mont.).
Yep, it's the same old boys spreading the same old BS. The rich get richer and the poor get s***. But how can it be solved?
As it stands now, the U.S. allows U.S. Corpoartions to defer their taxes on overseas profits until those profits are brought to the United States (until those profits are “repatriated”). So why should they ever bring their profits home?
CTJ tells us that “Many corporate leaders want Congress to permanently exempt offshore profits (adopt a "territorial" system, in other words) but that would only increase the incentives to shift jobs and profits offshore. So would allowing corporate leaders to believe that Congress will call off almost all of the U.S. taxes on offshore profits every few years with a repatriation holiday.
A repatriation holiday provides the greatest benefits to corporations that engage in the very worst tax avoidance according to CTJ. Multinational corporations that conduct real business offshore and pay taxes to foreign governments have much less to gain from a repatriation holiday than a company that has shifted profits to a Cayman Islands subsidiary that conducts no real business and pays no foreign taxes. And there are plenty of companies that are doing just that.
A Citizen for Tax Justice report explains that Congress should adopt a system that taxes all profits of U.S. corporations, no matter where they are earned. U.S. corporations would continue to get a credit, as they do now, for any taxes they pay to a foreign government, to avoid double-taxation. (A comprehensive tax reform bill offered last year by Senators Ron Wyden and Judd Gregg would do this.)
In fact, such a system might even help shore up tax revenue leaks in foreign countries. After all, companies who have the wherewithal to to beat the U.S. Government at the tax avoidance/ evasion game certainly have the muscle to beat up on the likes of El Salvador, Pakistan, Thailand and the like.
But from where I stand, the real problem is with Congress and the fact that all of them have their special pet interests. And so none of them will stand up and do the right thing. It would take fewer than a thousand words to write an off shore tax policy.
“Any U.S. company doing business in any foreign country and reaping a profit will pay the expected 35% tax on any and all profits. Any tax due a foreign country will be paid on behalf of the company by the U.S. IRS and companies will be given full credit.” This idea puts the U.S. Government in the position of disburser of funds, as well as collector of funds. It would also allow the U.S. Government to closely monitor/ audit the profits that companies like GE, Apple, Adobe, et. al., make overseas.
See – it's easy once you get started. But there isn't a politician in the land that has the cajones to do the job. I'm with Falstaff who said in Henry V, First thing we do is kill all the politicians.” Whoops, (my bad) he said lawyers. Oh well, it's the same thing isn't it? I read somewhere that 90% of the politicians are lawyers, and those that aren't act like lawyers.