President's Revenue Plan Rewards Tax Dodgers
by Scott Klinger, 2/2/2015
President Obama’s budget, which was released today, rewards corporate tax avoiders by forgiving hundreds of billions of dollars of corporate income taxes they owe on profits stashed offshore. The president proposed a minimum tax on offshore corporate profits last year, but only with today’s budget was he specific about the tax rates he would propose.
Under the terms of the plan, corporations would pay a minimum of 19 percent on their foreign profits going forward and an even lower 14 percent “transition tax” on the more than $2 trillion of corporate wealth already held offshore. The revenue from the one-time transition tax would be used to fund domestic infrastructure projects.
In fairness, the president’s proposed tax holiday is preferable to several schemes recently introduced in Congress. The president’s plan is mandatory and imposes a higher rate than any of the congressional plans. Still, it forgives more than half the taxes these companies already owe under current law. And the plan does not do enough to stem the annual flow of hundreds of billions of dollars in corporate profits earned in the United States to offshore tax havens, out of the reach of U.S. tax authorities. Legal tax dodging by corporations costs the U.S. Treasury an estimated $90 billion a year.
This enormous subsidy to America’s most prosperous corporations comes at a time when corporate taxes as a share of the economy remain near post-World War II lows – yet corporate profits and the stock market are at all-time highs. In the 1950s, corporations paid nearly a third of the cost of operating the federal government. Last year, corporate taxes accounted for just 10.6 percent of federal government receipts, according to budget documents released by the White House today. Corporate tax collections in 2014 fell $12 billion, short of estimates the White House made a year earlier. In contrast, collections from individual income taxes last year exceeded earlier forecasts.
A few corporations adept at the offshore tax haven game offer a glimpse into just how little they pay on their foreign profits. According to an analysis by Citizens for Tax Justice (CTJ) and U.S. PIRG (PIRG), 26 large U.S. corporations with combined offshore profits of over $400 billion paid just 3.3 percent in taxes to foreign governments, demonstrating that most of their assets are held in tax havens where corporate profits are taxed lightly, if at all. The 26 corporations in the CTJ/PIRG study have a combined U.S. tax liability of $129.6 billion on the money they have parked offshore. Under the president’s proposal, they would be required to pay just $57 billion. The remaining $72.6 billion of taxes would be “forgiven” and unavailable to fund infrastructure and other unmet needs.
Under the Obama plan, nearly $21 billion of Apple’s tax liabilities would be forgiven.
Apple told its shareholders that it paid only 2.3 percent in taxes on the $111 billion it holds offshore. Under the Obama plan, nearly $21 billion of Apple’s tax liabilities would be forgiven. Microsoft disclosed to its shareholders last year that it paid just 3.1 percent in taxes on the more than $76 billion in profits it holds offshore. If the president’s plan becomes law, Microsoft would enjoy a tax windfall of $13.7 billion.
There is no question that our infrastructure requires serious attention; we need $3.6 trillion in new investments over the next five years if we want our economy to remain healthy and competitive, according to the American Society of Civil Engineers. The president’s proposal barely makes a dent in that figure. Closing offshore tax loopholes would raise $90 billion each and every year for infrastructure; the president’s one-time tax holiday would raise just $238 billion – and we would be back looking for more road and bridge funds next year.
Farmers know that if you’ve got a hole in the fence through which the horses are running, it makes no sense to round them up and put them back in that corral until the fence is fixed.
The president needs to fix the fence. We need to shut down foreign tax havens and end the flagrant corporate avoidance of tax responsibilities. The nation needs corporate tax rates in the 30 percent range to make critical investments and reduce our interest payments. We need to demand more of the corporations that have used their political muscle to avoid paying for the infrastructure, courts, and public services on which they rely to run successful business operations in the U.S. If they don’t want to pay their fair share, they shouldn’t expect access to the world’s largest consumer market.