Congress fiddles while Treasury burns
Small business owners are well aware that U.S. multinationals legally escape paying much, and often all, of the highly publicized 35-percent corporate rate, Knapp told Remapping Debate, adding that his members aren’t happy about it.
In a March 2013 poll of members, he said, the ASBC found that 80 percent of the more than 500 small business owners surveyed strongly agreed that the use of accounting loopholes such as inversions was contributing to our nation’s budget problems and should be stopped; three-quarters said these practices wound up harming their own small businesses. Asked if foreign earnings of U.S. corporations should be taxed after receiving credit for foreign taxes paid, about two-thirds of small business owners said yes. The poll’s margin of error was 4.4 percent.
The responses were identical among Republicans, Democrats, and Independents. “This resonates with everybody,” said Knapp, who is also president and CEO of the South Carolina Small Business Chamber of Commerce. “Now, when we find such a contentious issue on which small business owners overwhelmingly agree, regardless of partisan leanings, our elected leaders in Washington ought to pay close attention.”
National interests vs. corporate interests
In 1952, long before anyone fretted about American companies becoming corporate runaways, levies on business accounted for 32.1 percent of all federal tax revenues. They’ve come a long way down since then.
Nowadays, U.S. corporations contribute less than a tenth of federal tax revenues. Wage workers, according to a February report by the Congressional Research Service, have made up the difference: From 1952 to 2012, payroll taxes as a share of federal revenues have risen from 9.7 percent to 34.5 percent, it said.
James S. Henry, a senior economic advisor to Tax Justice Network, an international coalition of activists who study corporation taxation, said numbers like these ought to have Americans asking two fundamental questions when it comes to inversions:
One: What is an American company?
Two: Should our national interests be subordinated to corporate interests?
American corporations, Henry told Remapping Debate, take much for granted: the protection of the U.S. armed forces; a stable political system; a legal structure that protects patents and fosters capital transparency; an education system that draws university students from around the world; a federal government that spends enormous sums of money on basic research for the nation’s health, energy, agriculture, and pharmaceutical industries. “Without these and other investments made for generations, American companies wouldn’t create the kind of wealth they do.”
And yet, Henry said, “We’ve got some of the biggest, most successful companies on the planet doing things like offshoring their headquarters, offshoring their intellectual property, transferring essential value abroad that was created in the United States. That should not be their prerogative. They shouldn’t be able to transfer these valuable assets offshore and not pay any tax. It’s not patriotic. To put it bluntly, it’s just plain bad citizenship.”
Knapp, of the Sustainable Business Council, was blunter: “Nobody likes a freeloader, and that’s what small business owners feel these big U.S. corporations are doing with their inversions — freeloading on the backs of the rest of us.”
With corporate and overall tax revenues running markedly below their historic averages relative to GDP, Congress should focus on wringing more money out of big companies — not less, or even the same amount, said Nick Jacobs, a spokesman for the Financing Accountability & Corporate Transparency Coalition, a nonprofit in Washington, D.C. that analyzes money laundering and tax evasion practices while promoting transparency in the global financial system.
“The bills still have to be paid,” he said. “You can advocate all you want for lower corporate tax rates, but if corporations pay less, the burden has to shift to somebody, and that means individuals and small, domestic businesses. That’s actually what’s been going on for the last sixty years.”
It’s worth remembering, says Rebecca Wilkins, a senior counsel at the nonprofit Citizens for Tax Justice, that after corporations invert, they wipe out not only their future U.S. tax liability on foreign earnings but make it much easier for themselves to avoid ever having to pay U.S. tax on the vast sums they’ve already booked offshore as American companies, doing so through complicated accounting and restructuring transactions. (Current U.S. law allows companies to defer paying taxes on overseas profits until those profits are brought home. As of last year, General Electric held $108 billion in offshore accounts, while Pfizer had $73 billion, according to a 2013 data analysis by the Bloomberg news agency.)
Were Congress to clamp down on inversions, it is likely that the same corporations would probably seek, and very possibly find, other legal means to dodge taxes, Jacobs conceded. “They’ve got armies of accountants, lawyers and tax advisors looking for every work-around imaginable.” Still, he said, that’s no reason not to do the right thing here.
“If they try other accounting tricks, we expose and shut those down, too,” he said, “one loophole at a time.”