Today the House Ways and Means Committee will hold its first tax reform hearing of 2017, which marks the official opening of the tax reform debate in Congress. True tax reform, if the committee sought to achieve it, could create more jobs and ensure companies are paying their fair share by cracking down on the massive offshore tax avoidance that companies engage in. Unfortunately, the panel of witnesses for today’s hearing is largely made up of representatives of various major corporations that are beneficiaries of the loopholes in our current corporate tax laws. Given this, it seems likely that these panelists will not push for a fairer corporate tax code, but rather a code that allows them to avoid even more taxes and incentivizes moving more jobs offshore.
The biggest tax avoider represented at the hearing is AT&T, which received $38 billion in tax breaks over the past eight years, meaning that it received more tax breaks than any other Fortune 500 company during that time. Over the past 10 years, the company managed to pay an average federal income tax rate of just 11.3 percent, less than a third of the statutory rate of 35 percent. In 2011, it managed to pay nothing in federal income taxes, despite earning $12 billion in profits.
A Recent Executive Order Threatens to Roll Back Safeguards against Offshore Tax Avoidance
The tax reform battle in Congress is looking to be a long, hard-fought one, but the president’s recent executive order shows that there may be no need to wait to start giving huge tax breaks to corporate giants.
The executive order, signed late last month, calls on the Treasury Department to review all “significant” tax regulations issued on or after January 1, 2016. Included in this window are rules curtailing earnings stripping and corporate inversions for the purpose of tax avoidance.
A new executive order signed by President Donald Trump on Friday asks that Treasury Secretary Steven Mnuchin review significant tax regulations issued in 2016. The broader context of the order is that President Trump is seeking to roll back regulations across the government – many of which he claims are overly burdensome – and could potentially target critical Treasury regulations such as two recent rules curbing corporate inversions. Any attempt to reopen tax loopholes closed by recent regulations would be counterproductive to the goal of creating a fair tax system and should be rejected.
State Legislators are Increasingly Stepping in to Combat Offshore Tax Haven Abuse
It’s Tax Day. Odds are, you’ve already filed your taxes. Maybe you filed through a tax filing software, or maybe you hired an accountant to help you puzzle through the deductions you might be eligible for. Or, maybe you filed yourself, old-school-style, filling out your 1040 in your kitchen. Or, maybe you forgot, and this blog will serve as a last-second reminder—go file your taxes!
All of this is to say: you’ve fulfilled your tax responsibilities. No doubt, the biggest corporations have filed theirs’s too. But, unlike you, they have an army of accountants to ensure they take advantage of every last loophole and gimmick to cut down on their tax liability to near nothing.
The U.S.’s top 50 public corporations have $1.6 trillion stashed offshore, and current tax reform proposals by President Trump and Congressional leadership will only make the problem worse.
This week, millions of Americans are filing their tax returns and mailing Uncle Sam a check. At the same time, the 50 biggest public companies in the U.S., including Pfizer, Goldman Sachs, GE, Chevron, Walmart, and Apple, are avoiding taxes while their huge pile of offshore cash grows.
In a new report called “Rigged Reform” Oxfam used corporate financial, lobbying, and investor disclosures to reveal that the 50 largest U.S. companies used an opaque and secretive network of at least 1,751 subsidiaries in tax havens to avoid paying their fair share of taxes.
Resisting calls to “drain the swamp,” these companies sink deep in the DC muck and mire—with eye-popping results. The report, which updates Oxfam’s analysis from our “Broken at the Top” report last year, reveals that since 2009, these 50 companies alone have spent $2.5 billion in federal lobbying—almost $50 million for every member of Congress. Oxfam estimates that for every $1 these companies spent lobbying on tax issues, they received an estimated $1,200 in tax breaks.
On Tuesday, Americans Will Pay More in Taxes Because One Group Shirks its Civic Responsibility: Multinational Companies
Though they probably don’t all agree on every detail, most Americans see paying taxes as a civic duty. Even so, it’s unlikely very many enjoy the paperwork and stress involved with Tuesday’s looming tax deadline. With few days left to go, millions of Americans are sitting down to get everything just right, and make sure they are paying what they owe—and not a penny more.
Wanting to minimize your tax liability is not unreasonable. Less reasonable is spending billions lobbying congress to create loopholes to be exploited in order to avoid nearly all of the taxes you would have otherwise been required to pay. Playing within the rules to reduce liability is one thing, but actively changing the rules of the game to eliminate liability altogether — while middle-class Americans and small businesses pay full fair — is objectively unfair.
This week marks the anniversary of the Panama Papers, a leak of more than 11 million documents exposing widespread corruption and illicit financing involving 140 public officials in more than 50 countries around the globe. The leak, large as it was, included documents from just one law firm and had reverberations worldwide. The impact was profound, but was it enough? And what did we learn?
For those not steeped in money laundering practices and illicit financial flows, the Panama Papers showed the world how it all works. If you want to finance terror; steal from taxpayers; traffic in humans, weapons, or drugs; or evade taxes, anonymous shell companies are the vehicle of choice. The Panamanian law firm Mossack Fonseca showed that these entities were easy to set up, inexpensive to maintain, and able to provide legal secrecy even if covering up underlying illegal activity.
Strengthen Measures against Offshore Tax Evasion — Don’t Repeal Them
The offshore tax haven lobby is out in force this month — kicking off a media and lobbying blitz against the Foreign Account Tax Compliance Act (FATCA), a sensible transparency measure to ferret out offshore tax evaders.
The Wall Street Journal editorial board completely misconstrues FATCA as government overreach in its March 2nd editorial, “My Big Fatca IRS”. The Journal writes:
“Almost since the Foreign Account Tax Compliance Act (Fatca) became law in 2010 to go after fat cats stashing money abroad, these pages have reported that it has led the IRS to treat law-abiding Americans as criminals…
“With the GOP controlling Congress and White House, the time is ripe for Republicans to make good on their pledge and give Fatca the heave-ho.”
The Journal’s editorial was echoed last week by several pro-tax haven groups in a letter to lawmakers. The editorial and the letter are off-base.
Financial Accounting Standards Board Considers Shining a Light on Corporate Tax Practices
On March 17, Richard Phillips of the Institute on Taxation and Economic Policy (ITEP) and I traveled to Norwalk, Connecticut to participate in a roundtable discussion at the Financial Accounting Standards Board (FASB). This is a little-known, but highly influential body that sets the accounting standards for U.S. companies. The morning discussion focused on a proposal to increase disclosures on corporate financial statements, including new disclosures on revenues and taxes on a country-by-country level. This information is critically important if we are to tackle the problem of offshoring profits in tax havens.
We heard several participants assert that, before any new disclosures are required, board members must ensure they know why it is being required and for what the users of the information will use it. Fair questions.
Unfortunately, I am not sure the discussion on tax disclosures adequately answered them. The focus was more theoretical and principle-based with a heavy reliance on accountant-speak. I greatly appreciated the opportunity to participate, but I confess that I did not fully take the opportunity to offer an alternative perspective. Since hindsight is 20/20, here is what I should have said.
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.