Tuesday, March 28, 2017
Loop-Holely Men and Women
Although we have a 35% federal tax rate, we know that the average American corporation with more than $10 million in annual revenues pays an average federal rate of 12.6%. You remember how Apple does it, right? Moved all their intellectual property (patents, trademarks, copyrights, etc.) to a related entity in a country (Ireland) where they have negotiated a tiny little tax rate, and then shift most of their profits to that entity by making their operations in high tax rate nations (like the U.S.) pay high prices for the use of that IP. This effectively shifts profits from high tax to low and almost-no tax venues.
But that is one example. In fact, with batteries of lawyers and accountants focused on how to avoid U.S. taxes, there are a whole pile of very profitable companies that pay no federal taxes. Patricia Cohen, writing for the March 9th New York Times explains the playing field: “Complaining that the United States has one of the world’s highest corporate tax levels, President Trump and congressional Republicans have repeatedly vowed to shrink it.
“Yet if the level is so high, why have so many companies’ income tax bills added up to zero?... That’s what a new analysis of 258 profitable Fortune 500 companies that earned more than $3.8 trillion in profits showed.
“Although the top corporate rate is 35 percent, hardly any company actually pays that. The report, by the Institute on Taxation and Economic Policy, a left-leaning research group in Washington, found that 100 of them — nearly 40 percent — paid no taxes in at least one year between 2008 and 2015. Eighteen, including General Electric, International Paper, Priceline.com and PG&E, incurred a total federal income tax bill of less than zero over the entire eight-year period — meaning they received rebates. The institute used the companies’ own regulatory filings to compute their tax rates…
“Companies take advantage of an array of tax loopholes and aggressive strategies that enable them to legally avoid paying what they owe. The institute’s report cites these examples:
“Multinational corporations like Apple [see above], Microsoft, Abbott Laboratories and Coca-Cola have ways of booking profits overseas, out of the reach of the Internal Revenue Service. (Those companies were not among the 258 whose rates were calculated by the institute, which said it could not verify the breakdown of their profits between the United States and other countries.)…
“Others, like American Electric Power, Con Ed and Comcast, qualified for accelerated depreciation, enabling them to write off most of the cost of equipment and machinery before it wore out.
“Facebook, Aetna and Exxon Mobil, among others, saved billions in taxes by giving options to top executives to buy stock in the future at a discount. The companies then get to deduct their huge payouts as a loss. Facebook used excess tax benefits from stock options to reduce its federal and state taxes by $5.78 billion from 2010 to 2015, the institute found.
“Individual industries have successfully lobbied for specific tax breaks that function as subsidies: for instance, drilling for gas and oil, building Nascar racetracks or railroad tracks, roasting coffee, undertaking certain kinds of research, producing ethanol or making movies (which saved the Walt Disney Company $1.48 billion over eight years, the report says).” So I guess you can say while the United States has one of the highest federal tax rates on paper, it actually has one of the lowest effective tax rates on earth.
So “people who believe anything a politician tells them” fans, lowering corporate taxes will provide more money to companies who will immediately use that money to hire lots more people… without stopping to figure out if there’s business plan justified by obvious demand. Huh? But it doesn’t work that way. That’s the Trump-GOP plan! And then if we lower taxes enough for U.S. companies to repatriate money they are holding overseas, all that money will create even more jobs. Er… lying politicians… there’s a catch. It never happens that way. Your trickle-down “fund the job creator” supply side economics have simply failed.
For example in the immediate past, Kansas Governor Brownback has virtually bankrupted his state, destroyed the public school system (the courts had to intervene), with unjustified tax cuts for the wealthy that did not result in massive new jobs and new growth… or his much-heralded expanded tax base (never happened). And the last time we lowered corporate taxes to encourage off-shore money to come into the U.S., during the Reagan presidency, what resulted was a flurry of corporate mergers and acquisitions with all that newfound money. And what happens when companies (the purported “job creators”) are merged or acquired? Yeah, they consolidate, eliminate overlapping jobs and increase efficiencies by… yup… laying off tons of workers. The Reagan era unemployment rate got much worse as a result. We call that “Reaganomics.”
But no matter how simply you explain reality to many an “average American,” who may suffer from having been educated through those failing public schools, they seem to buy the slogans (“job creation, believe me”) and not the consistent history of failure for those who tried to implement real programs based on these simplistic and highly-flawed slogans.
I’m Peter Dekom, and while reality can be pretty scary, living in a parallel universe built on flawed assumptions, lies and alternative facts scares me a whole lot more.