Pigs at the corporate tax cut trough | Economy |Axisoflogic.com

U.S. corporations pay less than half the taxes they did in 1990. | Photo: U.S. Department of Agriculture

Can Europe slow U.S. multinational corporate tax rip-offs?

A year ago, in November 2014, the U.S. held elections for the U.S. Congress. In an article for teleSUR that month, this writer predicted the top two objectives of the new Congress in 2015 would be the Trans-Pacific Partnership (TPP) free trade treaty and major tax cuts for U.S. corporations. With the TPP agreement recently signed, the top priority of the U.S. Congress is now more business tax cuts. Leading the charge are U.S. multinational corporations (MNCs).

Since 2001, tax cuts have allowed U.S. MNCs to keep trillions of dollars they should have otherwise paid in taxes. And that’s not counting additional hundreds of billions of dollars more in quasi-legal tax avoidance and outright illegal tax fraud.

One would think the issue of multinational corporate tax rip-offs would be at the top of the list in discussions and debates between presidential candidates of both U.S. parties. But thus far hardly a word has been said by candidates, Clinton, Bush, Trump and the others. The one exception has been Bernie Sanders, who has raised the issue of corporate taxes in general, but has said little about multinational corporations specifically—i.e. the biggest pigs at the corporate tax cut trough.

It’s an election year and U.S. MNCs are among the biggest election campaign money contributors to politicians running for office. So politicians of both parties will ‘blow smoke’, tell voters what they want to hear, and ‘take the corporate money and run’. After the elections, they’ll pass new laws giving U.S. corporations in general, and MNCs in particular, even more tax cuts.

Here’s some interesting specifics about U.S. corporations and the taxes they don’t pay:

The U.S. Government Accounting Office (hardly a radical source) estimated in 2013 that U.S. corporations paid an effective (i.e. actual) federal tax rate of only 12.6 percent to the U.S. government—not the official 35 percent that the media likes to report.
That 12.6 percent effective rate in 2013 compares to what was once an effective rate of 33 percent in 1990 and 29 percent as recently as 2000, when nominal rates were 34 percent (1990) and 35 percent (2001).
In 2013, U.S. corporations paid another effective 2.2 percent to U.S. states that levy income taxes in the U.S.
U.S. multinational corporations’ nominal rate paid to foreign governments is another 6 percent on average. But that number is a joke as well. U.S. companies like Apple, Google, Starbucks, U.S. oil companies, big pharmaceutical companies, and telecom companies manipulate dozens of loopholes in tax codes to end up paying on average no more than another 2 percent of that nominal 6 percent to foreign governments.
As a result of paying 2 percent, U.S. MNCs now hoard between US$1.7 trillion and US$2.1 trillion in cash in their offshore subsidiaries, refusing to bring the profits back to the U.S. to invest there in order to avoid paying U.S. taxes.

It’s not as if U.S. corporations can’t afford to pay more. Corporate pre-tax profits in the U.S. have tripled since 2001 and doubled since 2008, to US$1.65 trillion in 2014. And that’s not counting the offshore cash hoarding; or another US$1.35 trillion for non-corporate business profits. That’s US$3 trillion in business profits in the U.S. last year.

U.S. multinational corporations have the best deal of all U.S. corporations. They have ‘loopholes’ that allow them to pay even less total taxes on a global scale. For example, because they are located in many countries, they can manipulate their internal prices paid between their subsidiaries so that the profits end up recorded in the country with the lowest nominal rates. Favorite locations of U.S. MNCs are Ireland, the Netherlands, and favorite tax haven islands like Bermuda and the Caymans in the Caribbean. Their nominal rates are then reduced further by loopholes provided by those countries. Tax cut lawyers and corporate finance managers even joke about loopholes they call the ‘Dutch Sandwich’ in the Netherlands that allows them not to have to withhold taxes. Then there’s the ‘Double Irish’ in Ireland that allows them to cut their effective tax rates in half. Google Corporation in this way records all its foreign earnings through Ireland that it then routes through the Netherlands—that way creating a ‘Dutch Sandwich with a Double Irish’ to go. In one recent year, Apple Corp. saved US$9 billion in taxes this way. It’s why they hardly pay more than a token 2 percent on their foreign earnings in taxes to foreign countries.

Surely U.S. tax collectors know of all these manipulations by U.S. MNCs. Yes, of course they do. And they not only allow but encourage the loopholes. Since 1995, under the Clinton administration and continuing under Bush and now Obama, the U.S. government allows U.S. MNCs to manipulate the tax loopholes without penalty. After 1995, all U.S. MNCs have to do is ‘check the box’ on their corporate Internal Revenue Forms to indicate a foreign subsidiary of the corporation is what’s called a ‘disregarded entity’ for paying taxes. They then can activate the ‘Look Through’ loophole on their IRS forms to move profits between their offshore subsidiaries.

There’s the so-called ‘tax inversions’ gimmick that became public last year, which U.S. pharmaceutical companies in particular have been manipulating. ‘Inversions’ is the corporate strategy of buying a small company offshore and then transferring the U.S. corporation headquarters there on paper. That makes the MNC technically a foreign company and reduces its U.S. taxes, especially if the purchase is made in Ireland, Bermuda, Luxembourg, Belgium, or elsewhere.

After a flurry of publicity and attention given to the spread of MNC ‘inversions’ in 2014, the Obama administration went silent on the issue of stopping inversions. Billions of dollars in inversion ‘deals’ have continued.

But what about the U.S. foreign profits tax? Don’t U.S. MNCs have to pay the U.S. 35 percent corporate tax on offshore profits, called for by U.S. law? No. Not if the law is not enforced, which it isn’t. That’s why they’ve accumulated their US$1.7 trillion and US$2.1 trillion cash hoard in their offshore subsidiaries. Apple Corp. alone has stashed more than US$150 billion offshore.

While U.S. politicians and the Obama administration do nothing about the U.S. MNCs constant ‘gaming’ of the global tax system, recently an initiative was launched in Europe to go after the Apples, Googles, Starbucks, Amazons, and other U.S. MNCs to make them pay.

Last week Margrethe Vestager, an EU competition commissioner, declared U.S. MNC loopholes amounted to “illegal forms of state aid”. She then launched investigations into Apple, Amazon, Starbucks, and other U.S. MNCs. More are coming. Not surprising, in response the U.S. Treasury department of the Obama administration is protesting Vestager’s investigations. And the Treasury says it may have to cut U.S. taxes for Apple and others to compensate if Europe makes them pay more offshore. Meanwhile, Obama and Congress have re-introduced legislation to cut U.S. MNC’s nominal and effective tax rates on offshore profits even further. So watch for U.S. MNCs taxes to decline still further.

And what are the candidates for U.S. president and Congress of both parties saying about all this? Nothing. But what can one expect from those who are receiving billions of corporate dollars today to fund their re-election campaigns.

Jack Rasmus is author of the forthcoming book, ‘Systemic Fragility in the Global Economy’, Clarity Press, December 2015.

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