For years, the number one tax policy talking point from corporate lobbyists has been the claim that the United States has the highest corporate tax rate in the world. The story then goes that this high tax rate is driving away business and Congress should move to dramatically lower it.
A new study by the Institute on Taxation and Economic Policy (ITEP) reveals the reality that while corporations face a statutory tax rate of 35 percent, the tax code is so packed full of tax breaks that over eight years our nation’s largest and most profitable corporations paid an average effective tax rate of just 21.2 percent.
The U.S. government goes to great lengths to protect our national security. And yet, our failure to manage company ownership in this country leaves us exposed to all sorts of risk. Put simply, it is way too easy for the criminal or corrupt to hide their ownership of U.S. property behind a fake company, or a series of companies in order to stash or move their dirty money without detection.
Let me give you an example. In 2013, a Global Witness undercover investigation exposed how the former Chief Minister of Sarawak in Malaysia, Abdul Taib Mahmud, and his family used their political status to buy land and forest concessions for way less than their commercial value. Swathes of the Sarawak rainforest were destroyed as a result of these schemes, as well as various abuses committed against the rightful land owners. The Chief Minister’s brother used his secretly owned Singaporean company to hide profits from those corrupt forest and land deals and so that he could avoid paying around $10 million in taxes.
In recent weeks, the Republican congressional leadership’s effort to introduce a comprehensive tax reform bill has increasingly faced opposition from major business groups and skeptical lawmakers from across the aisle. The primary source of dissent thus far is that the most prominent tax framework, the House GOP’s “Better Way” tax blueprint, contains a radical provision to apply a border adjustment to pay for a cut in the rate from 35 to 20 percent.
A new report from the Institute on Taxation and Economic Policy (ITEP) released today finds that this border adjustment tax would be regressive and loophole-ridden and would likely violate international trade agreements.
“Partnership to Build America Act” and the “Infrastructure 2.0 Act” Would Exacerbate Offshore Tax Haven Abuse
The FACT Coalition sent two letters up to House lawmakers this week opposing a couple of egregious tax giveaways that are expected to be re-introduced by Rep. John Delaney (D-MD) in the near future.
Titled the “Partnership to Build America Act” and the “Infrastructure 2.0 Act”, both measures seek to offer multinational tax avoiders a reward under the premise that the measures might raise some revenue for infrastructure funding. The question is: at what cost?
Ending Anonymously-Owned Companies Would Be Widely Seen as an Effective Strategy in Crippling Those Who Pose a Real Danger to the U.S.
The President’s executive order banning refugees and legal immigrants from seven Muslim-majority nations has led to large protests in the U.S. In a conversation yesterday with anti-corruption advocates based in Canada and Belgium, I listened as they discussed the outrage this order has generated around the globe. The action, it appears, only reinforces the worst fears they held about the new administration.
The order is unconscionable, likely unlawful and—according to a growing list of security experts— unhelpful in protecting the nation against acts of terror. Just a few days in and the stories of harm and disruption are piling up.
Rolling Back Extractives Transparency Measure Could Hamper National Security
Lawmakers in the House of Representatives are expected to introduce a controversial resolution to repeal a bipartisan anti-corruption safeguard, in a move panned by non-partisan anti-corruption experts.
Former Sen. Richard Lugar (R-IN) and Sen. Ben Cardin (D-MD) sponsored the Energy Security Through Transparency Act, as an amendment to the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. The provision protects U.S. national security and combats corruption in developing countries (particularly those plagued by extremist violence and conflict) by requiring oil, gas, and mining companies which report to the Securities and Exchange Commission to publicly report all payments made to host-governments.
On Tax Reform, Congressional Leaders Propose Widening Loopholes for Multinationals at Expense of Domestic Businesses and Middle Class Taxpayers
Much of the analysis of the 2016 election reflects on a middle class that feels overburdened. While the economy has certainly improved since the recession, one thing has gotten worse that may be partially to blame—offshore tax haven abuse. A new report from U.S. PIRG Education Fund finds that multinational companies dodge an estimated $147 billion in federal and state taxes annually through offshore tax haven loopholes, shifting that burden instead onto small businesses and individual taxpayers. Titled “Picking Up the Tab 2016: Small Businesses Bear the Burden for Offshore Tax Havens,” the study estimates that each small business, on average, owes $5,186 more on its annual tax bill to collectively make up for the federal and state corporate tax revenue lost to offshore tax havens.
On International Anti-Corruption Day, We Must Better Understand the Extent to Which Corruption Harms Individual Lives and Entire Communities
Last week, I attended the International Anti-Corruption Conference held in Panama City (an irony not lost on anyone). Riding the bus to the convention center, I spoke with an anti-corruption advocate from Guatemala. She was eager to hear about the impact of the U.S. election on our work and what it means for American engagement in multilateral discussions on transparency and anti-corruption initiatives.
We discussed the large and multiple conflicts between the incoming President’s public responsibilities and his private business interests. I mentioned a recent article about how a banking lobby already moved their events for the coming year to one of Trump’s Washington area hotels, presumably to curry favor. Another article detailed a leasing agreement between the federal government and Trump enterprises, effectively making the incoming President his own landlord. Not even in office, and the list of conflicts of interest and potential conflicts is long.
Her reaction: “Welcome to my world.”
FATF Evaluation Notes the U.S. Anti-Money Laundering “System Has Serious Gaps that Impede Timely Access to Beneficial Ownership Information”
Last week, the Financial Action Task Force (FATF)—the international body that sets anti-money laundering and counter-terror financing (AML/CFT) standards—released its first review of the United States’ efforts to combat dirty money since 2006. While the FATF report finds that the U.S. generally has a decent AML/CFT framework, it notes that there remains a gaping hole in the regime: the problem of anonymous shell companies.
The FATF release states:
“The United States has a well-developed and robust anti-money laundering and counter-terrorist financing (AML/CFT) regime through which it is effectively investigating and prosecuting money laundering and terrorist financing. However, the system has serious gaps that impede timely access to beneficial ownership information.”
Indeed, the U.S. remains one of the easiest places in the world for criminals, terrorists, and kleptocrats to open anonymous shell companies to launder illicit money with impunity, according to leading academics. That is because no U.S. state requires that information on the true, human owner (known as the “beneficial owner”) of an entity be disclosed to authorities at the time of incorporation.
As Congress Pursues Tax Reform, FACT Urges Lawmakers to Close Loopholes, Hold Large Companies Accountable, and Refrain from Disadvantaging Wholly Domestic and Smaller Businesses
Corporate tax reform is coming. The central question is: what will it look like? After a campaign in which both presidential candidates pledged to close loopholes that allow corporations to dodge taxes and stop companies from booking their profits overseas, is there the political will to do it?
One current proposal in Congress calls for a 0% tax on profits booked offshore. Yes, the proposal is for 0%. That is not a typo. Given the campaign rhetoric, that seems antithetical to cracking down on corporate tax dodging. But that hasn’t stopped Representative John Delaney (D-MD) from pushing a bill that would do just that. Bad enough that House Speaker Paul Ryan (R-WI) and the President-elect have suggested giveaway-corporate-tax rates of between 8% and 10% on offshore profits — but the new starting point appears to be zero.
Sadly, the rate is only a part of the problem and, in some ways, the lesser of the evils. These proposals leave in place all of the loopholes that enable companies to move money and jobs overseas. They allow multinational companies to continue to defer paying taxes on profits booked offshore until the next giveaway — referred to in policy circles as a tax ‘holiday.’ These ‘holidays’ reward a small number of very large corporations — just 30 Fortune 500 companies hold 65% of the estimated $2.6 trillion in offshore profits — with a special tax rate (or no tax rate). That leaves domestic companies, smaller businesses, and individuals to pick up the tab (and, it’s a large tab: Citizens for Tax Justice estimates that Fortune 500 companies now owe more than $700 billion in unpaid taxes on their earnings booked offshore).