The US is teeming for tax reform. Obama speaks eloquently of the rich “paying their fair share” while Republicans uphold a pledge never to raise taxes. Warren Buffett is taxed less than his receptionist. Occupiers rally for the 99%, while tea-partiers rally behind 9-9-9.
Meanwhile, 25 of the Forbes top 100 companies paid their CEOs more than they paid Uncle Sam in 2010. Some of the big names are GE, Prudential, and Verizon, all of which paid their CEOs well over $10 million, but paid no income tax whatsoever.
That’s right, they paid nothing. Especially strange since the US recently surpassed Japan as the country with the highest corporate tax rate, weighing in at 35%.
But the rate doesn’t tell the whole story. Current rules for multi-national corporations (MNCs) allow companies to defer income earned in other countries, effectively paying no taxes at all until the money is returned to the US, or “repatriated.” Companies can defer income indefinitely, and are currently salivating at the prospect of a tax holiday that would allow repatriation at a meager 5.25%. In the last holiday of 2004, higher corporate margins did not lead to more jobs.
Beyond deferrals, MNCs also can deduct taxes paid to foreign governments from their US tax burden, and can even offset credits earned in high-tax countries onto income earned in low-tax countries.
These complex tax provisions are easy for some firms to exploit, especially if they have lots of tax attorneys. Last year, Bloomberg exposed Google’s fancy tax-avoidance technique known as the “Double Irish” and the “Dutch Sandwich.” (No, it is not a fun game of jump-rope.) While selling America’s intellectual property rights to overseas subsidiaries, Google aligned loopholes in four countries’ tax codes, ultimately reducing its total tax burden to 2.4%. In fairness, Google’s CEO made a measly $313,219.
This tendency of MNCs to find complementary loopholes among countries harkens back to the pre-globalization era, when multi-state companies would shift operations to the lowest-tax states. The race to the bottom of tax revenues was relieved when states pooled their collective bargaining power to create more consistent tax rules.
To end the race to the bottom, states adopted a new approach to taxation. Known as formulary apportionment (FA), companies divide their total tax burden among host states based on the percentage of sales (and sometimes payroll and property) located in each state, rather than on the elusive headquarters’ location. The apportionment approach increases simplicity (which businesses love) and increases tax revenue (which governments love.) That’s what we call a win-win.
Of course, firms would not be happy with the change if it increased their tax burden. A shift to FA could be paired with lower tax rates to be revenue neutral, so America would no longer have the highest corporate tax rate. Policies designed to be revenue neutral, however, should err on the side of the Treasury, especially if we truly want to reduce the deficit.
The best global scenario is for all countries to adopt apportionment, so that MNCs would have one general tax rule to follow, rather than the current system where MNCs have different rules for every country in which they operate.
In the short term a truly global policy is unlikely. But the EU is now considering moving to apportionment, creating an opportunity for the US to collaborate with Europe. We may even be able to leverage a US/EU partnership into a larger OECD policy. Basing taxes on sales would create a reasonably level playing field among all adopting countries. It’s time the private sector stop holding all the bargaining chips.
Even in the less ideal event that the US adopt apportionment unilaterally, we would be at a competitive advantage for start-ups, since companies could avoid being doubly taxed on domestic sales. This would likely spur other countries to adopt FA. Some supporters of FA include Jason Furman, Deputy Director of the Obama Administration’s National Economic Council, and even Larry Summers.
FA would create jobs by removing existing incentives to shift production overseas. Increases in corporate tax revenue would allow the US to invest in education and infrastructure, both known job creators. We would also have more capital to invest in new technology and innovation.
FA would prevent firms from exploiting international loopholes, ensuring that they pay their fair share. In this recession, we need to transfer more of the tax burden to corporations and their wealthy stakeholders, currently the only remaining untapped reserve of revenue. The middle-class has been squeezed dry.
In fact, while most of us have seen our incomes grow less than 2% per year since 2000, the wealthiest 1% saw their incomes grow over 10% every year. This inequity has finally percolated into widespread demonstrations and unrest. The time is now for redistributive action.
KeriAnn Wells is a Master of Public Policy Candidate at the University of California, Berkeley.
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Comments
TNC/MNCs are increasinly an unrestrained, unregulated frankenstein monster, starting to control govts. they grew in the last decade mainly.
see esp the capitalist network that runs the world
tax reform is a big part of the problem but notice what happened last time we had "tax reform". it was watered down in favor of rightwing trickle-voodoo economics.
--upton sinclair
"One withstands the invasion of armies; one does not withstand the invasion of ideas."
--victor hugo
occupy party reaches critical mass/seismic effect--now what?
It is going to take you to actually do something. It is so blatantly wrong now, how could you not be mad
??
I was born in Flin Flon Manitoba Canada and moved to Colorado in 1968 with my parents when I was nine. I am one of the United States "undocumented". I am hoping that what I say makes sense to someone, and they will start writing and treating this "occupy movement" with the respect it is going to earn. Did you see where Israel had a demonstration of 500,000 people demanding concessions from their government? It worked. (http://www.guardian.co.uk/world/2011/sep/04/israel-protests-social-justice )Listen to Martin Luther King, his words are as meaningful today as they were then. This struggle for economic justice and government control, will be won by the people! (It is very old..).
I feel the occupy movement does have a basic underlying message; Stop letting money decide political elections; And regulate corporate lobbying (and all lobbying) making it a public forum. Right now lobbying is mostly two old white guys sitting across from each other in an office. "They" have probably worked with each other or went to the same school; And "they" have promised you a job when you get out of politics, -- tripling your present salary!. The "lobbyist" used to be a "politician", it worked for him!. Who owns who? - That's a "Person-hood".
My friend and I put on a protest in Olympia for World Can't Wait Oct. 5, 2006 at the capitol. Here are some photos...
http://www.creativeflashes.com/Politics/World-Cant-Wait-Oct-5th-2006/1971747_r54FkC/1/100377072#100377079_npPWj
I also coordinated and promoted a protest in Bellevue when Bush was there.
http://www.youtube.com/watch?v=1hzh3OtBgNI&feature=related
http://www.youtube.com/watch?v=FPoWphQhdm0&NR=1
Happy to say both worked out without arrest, injury or property damage! I worked with the Washington State Patrol in Olympia, and Bellevue Police beforehand, and we pretty much understood the rules of engagement. Medina police were not good partners..
I lived in the Glenn Hotel in downtown Seattle when the WTO protests happened. It happened at my front door. I was a part of it, promoting it, and involved in it. There is something going on, and I am going to be a part of it again. I have helped organize and promote protests in Bellevue, Olympia, and Seattle Washington; another big one is coming. I feel it will be a “WTO” sized protest in multiple cities.
"I" was at the WTO protests in Seattle Washington, (with thousands of "other" really awesome "people", and a few "freaks") when a bunch of "anarchists" started busting windows with crowbars. We surrounded them, and they got in a circle with their crowbars. I tried to get the "Seattle police" to come arrest "these anarchists”, that were only fifty feet away and threatening violence and breaking windows… The "Seattle police" would not budge from their “police line”, making all of "us" the "enemy".... (There were thousands of "union" and "other" people sitting and standing in the street, - it was a relativly peaceful protest until the windows started breaking…). " I" am not the "enemy".
I will be in Seattle at 700 Stewart street at the Federal courthouse January 20th, 2012!!! I know we can do this better than last time.
The Corporate Occupation of the United States
Our corporate controlled government (through corporate lobbying and election funding ) is out of the peoples control. People want government control back. Makes sense to me… I feel US corporate capitalism (corporatism) is a type of economic fascism: To have a corporate being where the chain of command eventually muddles all responsibility to any human being. These corporate beings are running your life, and controlling your government. (Enough to really make an individual mad and protest.) In reality, the corporate being does not exist, and when it comes to face it’s corporate responsibility, it is a piece of paper. (Or a CEO saying; “I do not recall that”, “I did not have that information”, “that was not my responsibility, I was running the company, and not just that department”,,, and on and on. It has bred a corporate culture of abuse, because they keep getting away with it..), Corporate person-hood is plain and simply wrong: A corporation is not a human being. Restore capitalism to individual responsible chains of command, or this struggle will be lost.
Please Sign the petition to amend the Constitution for revoking corporate personhood at:
movetoamend.org
(I feel January 20th, 2012: will be a bigger day in US history than WTO in Seattle. The battle continues, rage against the machine is real.)
January 20, 2012 – Move to Amend Occupies the Courts!
Move To Amend is planning bold action to mark this date — Occupy the Courts — a one day occupation on Friday January 20, 2012, of the Federal Courts, including the Supreme Court of the United States and as many of the 89 U.S. District Court Buildings as we can. (I am inspired by Doctor Martin Luther King who said; "a true revolution of values", ... "there comes a time when silence is betrayal"., "people are not gonna be silenced".). Move to Amend will lead the charge on the judiciary which created — and continues to expand — corporate personhood rights.
http://open.salon.com/blog/kennspace/2011/10/28/corporate_occupation_of_the_united_states_1
the reason the usa has no citizen initiative was to keep legislation in a few hands, 'of the better sort.' what you have is the natural result. if you genuinely want a better result, you have to get a better system.
It's kind of like rising healthcare costs, actually. Medical facilities and providers must "negotiate" with each individual private insurance company. "Negotiate" means that the insurance company tells the facility what percentage they will pay, and the facility agrees to avoid losing so many patients they'd have to close. The facilities must try to guess the percentage that the insurance companies will each pay so that they can set a rate that ensures they will make enough to stay open.
Two-thirds of all large U.S. corporations do not pay federal sales tax, while posting extremely healthy profits, while collecting taxpayer-funded subsidies, multi-million-dollar tax refunds they shouldn't be receiving because they didn't actually pay anything in, and lucrative, multi-year tax credits. This is a problem. At this point, I'm ready for a drastic solution, like maybe chucking the corporate tax code out the window and just charging EACH business a percentage of their GROSS earnings; no packaging companies together into a single tax return; no deductions at all. Or allow a substantial deduction, with the proviso that a minimum of 51% of employees and facilities MUST be located in the U.S., and that EVERY employee is paid a living wage [including health insurance and retirement] based on the locale. They're making enormous profits; they can certainly afford to do it. This plan has the additonal benefits of increasing the number of middle class workers that can actually afford to pay federal income tax, increasing revenue; stimulating the economy through increased demand due to increased disposable income; and dramatically reducing the amount of money taxpayers spend on government assistance programs, because working people would not have to rely on them anymore. The burden will have shifted from the taxpayers to the employer corporations who SHOULD have been paying their employees enough to live on all along.
Corporations are certainly richer, but the poor and middle class greatly outnumber them. Pay them all a living wage, stand back, and watch the economy explode.
Further, for many services, the ability to control where the service is performed is high. Say phone service. Calls on high traffic routes have direct links, but on lower traffic routes, the call is transited through another country. When Moldova calls Ghana, it's highly unlikely that there is direct interconnect. So, the call is routed through a middle country which has interconnection with Ghana, and there are probably a number of these. It's kind of like driving from NY to CA, legitimate routes will never take you through Florida, but whether or not you go through Kansas might be optional.
The US has enough really stupid and unfair corporate tax loopholes that we don't need to worry about Europe's, because that is what Double Irish and Dutch Sandwich are.
Whirlpool had an effective tax rate of -10%. Yes, that is NEGATIVE ten percent, thanks to tax credits for energy efficient appliances. Over $300 million dollars worth.
When Congress enacted the tax credits, they estimated the cost would be under 100 million, industry wide.
There are gazillions of examples like this.
But, even if you could get all the countries to end their bickering over who gets what, TAXING CORPORATIONS IS STUPID.
When a corporation is taxed, and that tax is regular and steady, they simply pass the tax to consumers, effectively raising the sales tax by whatever amount per unit the income tax will cost the corporation.
SINCE SALES TAX IS REGRESSIVE AND THIS WILL BECOME A DEFACTO SALES TAX, your plan has just screwed the poor once again. Congratulations. I guess basic economics isn't a requirement for upper level degrees in Public Policy at Cal anymore (if it ever was).
Go Bears!!!
Since corporate tax is on profits, not revenue, a better argument is that it is a tax on shares and hits the investor class the hardest. Progressive!
US states are currently doing similar calculations to determine what portion of US companies' profits they can tax. There certainly may be complications, but no system is perfect, and the states have been doing it for 50 years. States adopted FA to make it simpler for companies, and it worked. Scaling it up would introduce new complexities, but that will happen no matter what policy changes we adopt.
You're right that if the US adopted FA but other countries didn't, there would be a potential for double taxation. That is a downside, but the US wouldn't be doubly taxing firms, other countries would be, so that could make us more competitive.
Last, we only need to calculate the share of a companies profits we would tax. The idea is that we would use the parent organization, attributing all subsidiaries' sales to the parent, and then apportioning out profit for taxation based on the percent of overall revenue earned in the US. Once we have calculated the tax base, we apply US rates, etc. We wouldn't be getting caught in Europe's loopholes like we are now.
FA is not a silver bullet, but it would be a marked improvement, and it is not wholly unlikely that the US could work with some of our allies to adopt FA.
@ Malcolm
FA would eliminate deferrals of income, because only the portion of income earned in the US would be taxed, so there would be no need to defer foreign-earned income.
FA is not a defacto sales tax. As Malusinka said, it taxes profits, but only the share of profits attributed to sales in the taxing jurisdiction.
FA is not a perfect solution - there is not perfect tax system. No matter what, there will be winners and losers. But income tax is not regressive if higher incomes are taxed at higher rates, which is what we do now. I WOULD NOT PROPOSE A REGRESSIVE TAX. The main promise of FA is that it removes incentives to ship jobs oversees. With FA, any company selling in the US will pay US taxes, and companies will always have an incentive to sell to Americans.
Cal does require extensive microeconomics for the MPP. Firms generally cannot pass taxes onto consumers if they want to maintain competitive pricing. The market sets prices, not firms (unless they are monopolies.) If companies raise prices, they lose sales.
You say we should not tax corporations. On that point, we have to agree to disagree. As long as corporations are people, they should pay taxes like people. If we eliminate corporate personhood, then maybe we can discuss eliminating corporate taxes, but it would have to be paired with higher salaries, and higher progressive tax rates on incomes, capital gains, and dividends.
Let's start talking monopolies. That is what started the previous tax revoluation (way back folks, Tea Pot Dome), but it busted up the monopolies and AT&T CRIED AND CRIED AND CRIED and it is still in business.
BUST 'EM UP! Or find people in the government with the BALLS TO BUST 'EM UP. EXXON, SHELL (DUTCH) doesn't madda, BUST 'EM UP!
Competition is good, monopolies are bad.
Not that I feel strongly about the dumbing-down of the United States or anything...