Plan B Forum

Republicans are busy saying that US companies pay the highest rates of corporate taxes in the world. When they actually often pay close to nothing.


http://www.washingtonpost.com/blogs/won ... stop-them/


Marty Sullivan figured out how the world’s biggest companies avoided billions in taxes. Here’s how he wants to stop them.

It was a humbling experience for the chief executive of the world’s most valuable company. Hauled before a Senate panel, Apple’s Tim Cook had to explain how an American company whose American engineers had created the iPhone and the iPad was able to avoid paying any taxes on billions of dollars in profits generated by those products — not to United States, not to any country. The only defense the Cook could conjure up for Apple “stateless” income was that it was all perfectly legal.

A few miles away in Arlington, a 55-year-old economist named Marty Sullivan sat on a folding metal chair at a card table in the garage of his modest brick home and watched the hearing unfold on his laptop computer. Sullivan is one of those unheralded members of the permanent Washington establishment who make things work, at least when the politicians let them. And for two decades, from the same home office, Sullivan has been exposing the tax-dodging schemes of multinational corporations in the columns of Tax Notes, a must-read publication for tax lawyers, accountants and policy wonks.

It was Sullivan who shined an early light on how companies had finagled “transfer prices” — the price one division charges another for parts or services — to shift profits to low-tax jurisdictions.

It was Sullivan who had called out the big drug and tech companies for transferring ownership of their patents and trademarks — the source of much of their profits — to subsidiaries in Ireland and other low-tax jurisdictions. ... At a recent meeting in St. Petersburg, the leaders of the 20 leading industrial nations vowed to push ahead with tough new global standards that would put an end to “stateless” income and limit the ability of firms to avoid taxation by shifting profits to tax havens. After years of competing against one another for corporate investment by offering ever-more-favorable tax regimes, cash-strapped governments have decided to go after the companies rather than each other.

“There’s been a race to the bottom, and the multinationals were winning,” said Eric Toder, co-director of the nonpartisan Tax Policy Center in Washington." ..."

Gee whiz, now that was disappointing...

From the subject line I was hoping for something autobiographical...

Republicans are busy saying that US companies pay the highest rates of corporate taxes in the world. When they actually often pay close to nothing.

They may pay close to nothing because the corporate tax structure forces them to look elswhere to keep/save their money. How much would they have to pay if they kept their money here?

Anyone (everyone?) is going to look for ways to save on their taxes. Legal deductions are used by anyone paying taxes. The gov can implicate Apple and the rest but the method is legal, just like our personal deductions and safe havens. Want it to change, then change the laws. And this is not just a republican item. All of the gov protect their donors.

That's true oldr, but it does undercut the bellyaching about how high the tax rate is. Face it, how many corporations would just voluntarily stop taking legal deductions if the tax rate were cut? I seriously doubt any would.

I haven't looked at the Tax Code or the Internal Revenue Regulations in quite a while, but I assume that they are even more voluminous than when I was mucking around with them. So we have the United States Congress trying to develop a system that taxes private enterprise "fairly," satisfying their ignorant constituents who want corporations to "pay their fair share," while at the same time protecting their friends and friendly industries with what are commonly called, "loopholes." So we have a minefield of a tax code the encourages private enterprises to seek ways of avoiding taxes by whatever means are possible. The presumption in private industry is that one should take advantage of every exclusion, deduction, credit, or other advantage that the law allows. But no more than that. That is, by definition, paying your fair share.

So large corporations hire teams of accountants and tax attorneys whose sole reason for existence is minimizing the tax burden(s). Maybe it would be wiser to get rid of ALL of the deductions, credits, exclusions, and so on, and just tax corporations on total revenue and be done with it. It wouldn't take much - a couple percent - to generate a mountain of tax revenue.

Or we could make the corporate tax rate ZERO. Then corporations could eliminate all the accountants and tax lawyers, and devote their energies into making money - which is what they were created to do. And that money would be paid out in dividends (where it would be taxed), paid to the employees (where it would be taxed), or poured back into the business, which would be a good thing, eh? All that would be necessary would be a law preventing corporations from hoarding cash.

There is nothing contradictory at all in pointing out that U.S. has one of the highest corporate tax rates in the world, while acknowledging that many corporations are able to avoid paying huge amounts in federal taxes. The companies have to employ bizarre tax avoidance strategies BECAUSE THE RATES ARE TOO HIGH.

And need I point out that the tax code permits MOST corporations to bypass federal income taxes altogether under Subchapter S, by which the profits show up on the individual tax returns of the owners?

Dave--there's a pretty strict requirements for S corporations, including a limit on 100 shareholders and a single class of stock, which keeps all public corporations and most of the corporations which would hire those legions of lawyers and accountants from getting that status. Throw in the fact that capital cannot be accumulated (or poured back into the business) by an S corporation but must be distributed to the shareholders (and taxed as ordinary income), and it's clear why this status is not all that popular, especially after the advent of LLCs and LLPs which provide the same sort of capital distributions without all the corporate formalities.