As other countries have reduced corporate taxes, the U.S. has one of the world’s highest top rates, at 35%, although effective rates everywhere can be substantially lower depending on tax breaks and other incentives. The U.S. also is one of the few developed countries that still seek to tax their companies’ global earnings; most countries tax only profit earned inside their borders
The G.O.P. says global competitiveness requires the United States to reduce its corporate tax rate. But the United States actually has the lowest corporate tax burden of any of the member nations of the Organization for Economic Cooperation and Development.
Revenue Statistics of O.E.C.D. Member Countries, 2010
The GAO reported in 2008 that “two out of every three United States corporations paid no federal income taxes from 1998 through 2005.”
Corporate Taxes as a Percentage of Federal Revenue
1955 . . . 27.3%
2010 . . . 8.9%Corporate Taxes as a Percentage of GDP
1955 . . . 4.3%
2010 . . . 1.3%Individual Income/Payrolls as a Percentage of Federal Revenue
1955 . . . 58.0%
2010 . . . 81.5%
Obstacles to a deal to revamp corporate taxes include the likelihood corporations will fight to keep tax breaks that work to their benefit, and White House concerns that any tax overhaul not result in less revenue…
The strangling effect of the “high tax rates”?
Part 2 of John McKinnon’s argument:
The move toward offshore incorporation is likely contributing to an explosion in U.S. investment in securities of offshore-incorporated companies. Treasury data show that U.S. holdings of securities of Cayman Islands companies have grown nearly twenty-fold since 1997. U.S. holdings of Cayman securities totaled $373 billion in 2009, the latest year available, the fourth-highest total for any foreign country. It also is likely contributing to erosion of the U.S. tax base, although it is difficult to say how much.
So if the taxes were lowered, say, to 15%, why would companies evading taxes completely (i.e. paying 0%) suddenly be interested in paying higher taxes? Basically, we’re in 5 year recurring tax holiday scam:
The New York Times reports that corporate lobbyists are renewing a push for a “one time” deal that allows them to bring foreign profits back into the U.S. at a low tax rate:
Under the proposal, known as a repatriation holiday, the federal income tax owed on such profits returned to the United States would fall to 5.25 percent for one year, from 35 percent. In the short term, the measure could generate tens of billions in tax revenues as companies transfer money that would otherwise remain abroad, and it could help ease the huge budget deficit.
Corporations and their lobbyists say the tax break could resuscitate the gasping recovery by inducing multinational corporations to inject $1 trillion or more into the economy, and they promoted the proposal as “the next stimulus” at a conference last Wednesday in Washington
Here’s what Fortune found out from the last tax holiday:
The Treasury Department wrote rules trying to ensure that the recovered cash was in fact invested back into the companies. But money is fungible. Although the rules expressly prohibited using the funds for dividend payments or stock buybacks, subsequent analysis has shown participants sent most of it to shareholders anyway. One study, released by the National Bureau of Economic Research, found that for every dollar of repatriated cash, companies bumped up shareholder payouts between 60 and 92 cents.
“A tax holiday would bring a substantial amount of cash back to the United States and paying that out to shareholders is good for the economy,” said study co-author Kristin Forbes, an economics professor at MIT’s Sloan School of Management and a member of then-President George W. Bush’s council of economic advisers. “But if you’re a politician claiming this will create a lot of jobs or new investment, it isn’t supported by the data.”
So, Wall Street investors will get billions for free, which they’ll re-invest in …. China (isn’t that what the free market is telling us the capital is flowing to?) And, of course, we’ll have another tax holiday to get those funds back .. what a virtuous circle!
BTW:
According to a 2009 study by the Congressional Research Service, of the top 12 repatriating companies in 2004, 10 cut jobs between that time and the beginning of the recession in 2008. Hewlett-Packard (HPQ), for example, repatriated $14.5 billion, only to then lay off 14,500 workers.
Awesome! Bloomberg:
The current U.S. international tax system is the best of all worlds for U.S. multinationals,” saidDavid S. Miller, a partner at Cadwalader, Wickersham & Taft LLP in New York. That’s because the companies can defer federal income taxes by shifting profits into low-tax jurisdictions abroad, and then use foreign tax credits to shelter those earnings from U.S. tax when they repatriate them, he said.
They’re aided by a cadre of attorneys, accountants and investment bankers in the tax-planning industry — such as a panel of KPMG LLP tax advisers who held forth in a chilly hotel ballroom at a Philadelphia conference last month. There, they discussed a series of techniques for multinationals to return cash from overseas while avoiding or deferring the taxes.
KPMG tax advisers Kevin Glenn and Tom Zollo used slides to describe several methods. One diagram resembled a schematic from the Manhattan Project. Another strategy would require certain “bells and whistles” to convince regulators of an actual non-tax business purpose, Glenn explained.
I’m sure corporations will agree to close loopholes in return for lowering the tax rates, right? NYT:
Arguably, the United States now has a corporate tax code that’s the worst of all worlds. The official rate is higher than in almost any other country, which forces companies to devote enormous time and effort to finding loopholes. Yet the government raises less money in corporate taxes than it once did, because of all the loopholes that have been added in recent decades.
The official position of the Business Roundtable, one of the most important corporate lobbying groups, is telling. The Roundtable says it supports corporate tax reform. But it actually favors only a reduction in the tax rate. The group refuses to say whether it also favors a reduction of loopholes. In effect, the Roundtable wants a tax cut for its members regardless of how much the tax code is simplified — or whether the budget deficit grows.
Got that? They’re for lower tax rates, in ADDITION to retaining all the loopholes that lower their already low tax rates. FTW!
