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David Sirota
David Sirota
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Should Companies Have to Pay Taxes?

Comment

Reading companies' annual reports to the Securities and Exchange Commission is a reliable cure for insomnia. Every so often, though, there is a significant revelation in the paperwork. This year, one of the most important revelations came from Microsoft's filings, which spotlighted how the tax code allows corporations to enjoy the benefits of American citizenship yet avoid paying U.S. taxes.

According to the SEC documents, the company is sitting on almost $29.6 billion it would owe in U.S. taxes if it repatriated the $92.9 billion of earnings it is keeping offshore. That amount of money represents a significant spike from prior years.

To put this in perspective, the levies the company would owe amount to almost the entire two-year operating budget of the company's home state of Washington.

The disclosure in Microsoft's SEC filing lands amid an intensifying debate over the fairness of U.S.-based multinational corporations using offshore subsidiaries to avoid paying American taxes. Such maneuvers — although often legal — threaten to significantly reduce U.S. corporate tax receipts during an era marked by government budget deficits.

Microsoft has not formally declared itself a subsidiary of a foreign company, so the firm has not technically engaged in the so-called "inversion" scheme that President Obama and Democrats have lately been criticizing. However, according to a 2012 U.S. Senate investigation, the company has in recent years used its offshore subsidiaries to substantially reduce its tax bills.

That probe uncovered details of how those subsidiaries are used. In its report, the Senate's Permanent Subcommittee on Investigations noted that "despite the [company's] research largely occurring in the United States and generating U.S. tax credits, profit rights to the intellectual property are largely located in foreign tax havens." The report discovered that through those tax havens, "Microsoft was able to shift offshore nearly $21 billion (in a 3-year period), or almost half of its U.S.

retail sales net revenue, saving up to $4.5 billion in taxes on goods sold in the United States, or just over $4 million in U.S. taxes each day."

Microsoft, of course, is not alone. According to a report by Citizens for Tax Justice, "American Fortune 500 corporations are likely saving about $550 billion by holding nearly $2 trillion of 'permanently reinvested' profits offshore." The report also found that "28 corporations reveal that they have paid an income tax rate of 10 percent or less to the governments of the countries where these profits are officially held, indicating that most of these profits are likely in offshore tax havens."

In the political debate over taxes, conservatives often cite inversions and other games with offshore subsidiaries as proof that the U.S. corporate tax rate is too high in comparison to other industrialized countries. Yet, when all the existing tax deductions, write-offs and credits are factored in, America's effective corporate tax rate is actually one of the industrialized world's lowest.

With the U.S. tax code now permitting companies to use brazen tax avoidance schemes in true tax havens, the real question is more fundamental than what the proper corporate tax rate should be. Instead, the question is now whether corporations should have to pay any taxes on their profits at all?

The answer should be obvious. Companies enjoy huge benefits from operating in the United States — benefits like (among other things) intellectual property protection, government provided security (police, firefighting, etc.) and publicly financed infrastructure. Those services and assets cost money.

If the tax tricks employed by companies like Microsoft become the rationale to eliminate corporate taxes entirely, then America would allow companies to be exempt from paying their fair share of those costs. That would be a truly endless and unacceptable bailout — one given to executives and shareholders and paid for by the rest of us.

David Sirota is a senior writer at the International Business Times and the best-selling author of the books "Hostile Takeover," "The Uprising" and "Back to Our Future." Email him at ds@davidsirota.com, follow him on Twitter @davidsirota or visit his website at www.davidsirota.com.

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Comments

3 Comments | Post Comment
Yes, of course they should pay taxes just like all other responsible citizens. After all, they want to be people, right? Except that “corporate personhood” is only about corporations getting all the rights, privileges and benefits of being an actual human, but not having to also take any of the responsibilities or limitations that go along with it. They want the best of both worlds. And if they don't pay taxes you know the rest of us will have to pick up the tab because corporations will still want some of the things that our taxes pay for, like roads, bridges, military, legal system, education system, R&D, a healthy population of workers, …

It drives me crazy when the corporate media misinforms the public by talking about the nominal (on paper only) corporate tax rate, implying that it is too high for all these poor corporations -- so much higher than other countries. I'm glad David touched on this. Because in reality corporations have so many tax loopholes, tricks, and tax havens that their real effective tax rate (what they actually pay) is on average about 12%. That's less than most Americans pay! Almost 1 in 4 corporations pay no taxes, some have had negative tax rates, all while the tax burden has shifted from corporations to workers over the last 60+ years. Corporate taxes recently made up less than 10% of federal revenue, down from 26% in 1950 while payroll taxes for you and me made up 35%, up from 11% in 1950. The total amount of federal income tax subsidies us workers gave to corporations over a five year period in a recent study I found was $362 billion!

So the next time you hear someone on TV say that corporations pay 35% yell B.S. at the talking head and throw something at it!
Comment: #1
Posted by: A Smith
Fri Aug 29, 2014 11:35 AM
So David has made the point that many large companies pay a lower tax rate than others. And Smith makes some good points, this isen't fair and as usual, the media dosen't have a clue. So how do we fix it? Is the problem with the tax code itself? If so, lets fix it. Tax reform would be a great issue to work on. But a lot of these companies are in tight with the government. This all goes back to a great point that Dan Carlin made: The only people that can fix these problems are the ones who figured out ways to gain from them. There is simply no incentive for them to fix anything. The first step to reform would be more rigorous journalism, and that's why I like this column so much. Its a step above most of the mediocre opinion columns. But lets not kid ourselves about corperate taxes. Who pays for them? We do. Every tax and regulation is woven into the cost of the products we buy. I just want a level playing field where all corperations pay the same rate, instead of a centrally planned economy that picks winners and losers.
Comment: #2
Posted by: Chris McCoy
Sat Aug 30, 2014 6:22 AM
I used to say to our audiences: "It is difficult to get a man to understand something, when his salary depends upon his not understanding it!" -- Upton Sinclair
Comment: #3
Posted by: Bruce Strickland
Sat Aug 30, 2014 10:49 AM
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