Tax the rich!
This rallying cry has long been a popular, populist solution to the national economic crisis except, as a new report suggests, it doesn't work, especially when applied to multinational corporations.
A New York Times article last week indicates many large corporations skirt the tax code with the same contemptuous disregard as billionaire Leona Helmsley, who famously said, "We don't pay taxes. Only the little people pay taxes."
The late Mrs. Helmsley, who once owned the Empire State Building, was sentenced to 19 months in prison and two months under house arrest in 1992 for federal income tax evasion, but these days few corporate leaders suffer such consequences.
In fact, most take advantage of legal deductions that allow them to pay few taxes, sometimes none at all. Thanks to various subsidies, shelters and special breaks, 55 percent of companies paid no federal income taxes at some point during a seven-year period the Government Accountability Office studied in 2008.
This makes U.S. multinationals world leaders in tax avoidance, said Edward D. Kleinbard, a professor at the University of Southern California who was head of the congressional joint committee on taxes.
This needs to change, especially as this country struggles to shrink a ballooning federal deficit that exceeds $14 trillion; confronts paying for continuing expenses in education, health care and defense; and deals with collapsing Medicare and Social Security programs.
Basic fiscal principles dictate two ways of overcoming budget shortfalls: reduce spending and/or increase revenues. Congress and the president already have been locked in debates involving cuts to the budget as well as raising taxes. Those discussions must also focus on closing myriad tax loopholes.
Among the shelters that should be eliminated is one that taxes multinational corporations on their foreign earnings but allows them to avoid levies indefinitely by keeping profits overseas. Accountants have figured out ways to shift profits to low-tax countries and to invest profits offshore, David S. Miller, a partner at Cadwalader, Wickersham & Taft in New York, explained.
The present code contains numerous other, more complex shelters that have allowed corporate taxes to provide only about 9 percent of all federal revenue in 2010, even though the 35 percent U.S. corporate tax rate is second in the world only to Japan's.
Further complicating the issue is the fact that corporate taxes in America vary widely by industry. Retailers paid 31 percent; the construction industry, 30 percent; and manufacturers, 26 percent.
Corporations argue that overall rates must be lowered to make the United States more competitive with other nations in a global marketplace, and we agree - as long as they actually pay their share. After all, even without special tax breaks, doing business in this country provides enormous privileges: a superlative education system, extensive infrastructure, sophisticated technologies, stable government and extraordinarily varied cultural amenities.
Taxes support most of these benefits, so it's not just reasonable, it's imperative that successful corporations contribute.
So drop the corporate tax rate a few points to make it more globally competitive, level the playing field by ending tax policies that favor some industries over others, and close loopholes and tax dodges that motivate corporations to focus more on bookkeeping tricks than product quality, innovation and service.
Source: http://www.theday.com
This rallying cry has long been a popular, populist solution to the national economic crisis except, as a new report suggests, it doesn't work, especially when applied to multinational corporations.
A New York Times article last week indicates many large corporations skirt the tax code with the same contemptuous disregard as billionaire Leona Helmsley, who famously said, "We don't pay taxes. Only the little people pay taxes."
The late Mrs. Helmsley, who once owned the Empire State Building, was sentenced to 19 months in prison and two months under house arrest in 1992 for federal income tax evasion, but these days few corporate leaders suffer such consequences.
In fact, most take advantage of legal deductions that allow them to pay few taxes, sometimes none at all. Thanks to various subsidies, shelters and special breaks, 55 percent of companies paid no federal income taxes at some point during a seven-year period the Government Accountability Office studied in 2008.
This makes U.S. multinationals world leaders in tax avoidance, said Edward D. Kleinbard, a professor at the University of Southern California who was head of the congressional joint committee on taxes.
This needs to change, especially as this country struggles to shrink a ballooning federal deficit that exceeds $14 trillion; confronts paying for continuing expenses in education, health care and defense; and deals with collapsing Medicare and Social Security programs.
Basic fiscal principles dictate two ways of overcoming budget shortfalls: reduce spending and/or increase revenues. Congress and the president already have been locked in debates involving cuts to the budget as well as raising taxes. Those discussions must also focus on closing myriad tax loopholes.
Among the shelters that should be eliminated is one that taxes multinational corporations on their foreign earnings but allows them to avoid levies indefinitely by keeping profits overseas. Accountants have figured out ways to shift profits to low-tax countries and to invest profits offshore, David S. Miller, a partner at Cadwalader, Wickersham & Taft in New York, explained.
The present code contains numerous other, more complex shelters that have allowed corporate taxes to provide only about 9 percent of all federal revenue in 2010, even though the 35 percent U.S. corporate tax rate is second in the world only to Japan's.
Further complicating the issue is the fact that corporate taxes in America vary widely by industry. Retailers paid 31 percent; the construction industry, 30 percent; and manufacturers, 26 percent.
Corporations argue that overall rates must be lowered to make the United States more competitive with other nations in a global marketplace, and we agree - as long as they actually pay their share. After all, even without special tax breaks, doing business in this country provides enormous privileges: a superlative education system, extensive infrastructure, sophisticated technologies, stable government and extraordinarily varied cultural amenities.
Taxes support most of these benefits, so it's not just reasonable, it's imperative that successful corporations contribute.
So drop the corporate tax rate a few points to make it more globally competitive, level the playing field by ending tax policies that favor some industries over others, and close loopholes and tax dodges that motivate corporations to focus more on bookkeeping tricks than product quality, innovation and service.
Source: http://www.theday.com
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