As the rest of us fill out our federal tax returns this year, we can all take great comfort in the fact that many of the largest corporations in the United States are not paying any federal taxes at all. Over the past couple of decades, multinational corporations have become incredibly skilled at avoiding taxes. It has become routine for big companies to shift profitable operations to divisions in other countries where tax rates are lower. It has also become routine for big companies to set up “sham headquarters” in tax havens around the world. Many U.S. corporations have even renounced their status as American companies in order to avoid paying taxes. All of this has had a dramatic impact on the income of the federal government. Corporate taxes now account for less than 7 percent of all federal revenue. Back in the 1950s they accounted for about 30 percent of all federal revenue. Meanwhile, the 35 percent corporate tax rate in the United States is chasing companies (and the accompanying good jobs) out of the United States at a blinding pace. In a world where big corporations will go to any lengths to “game the system”, this is absolutely devastating our economy.
The facts that you are about to read will probably make you really mad. They are meant to make you mad. They are meant to help you understand that our tax system is deeply, deeply broken. The big multinational corporations do not pay their share of taxes, our representatives in Washington D.C. admit that they are always several steps behind the hordes of corporate tax lawyers and economic activity is being pushed out of the United States by our ridiculously high corporate tax rate. Basically, our corporate tax policy is a complete and total mess.
The following are 10 facts about corporate taxes that will likely make your blood boil….
#1 Once Japan’s corporate tax rate goes down in April, the United States will have the the highest corporate tax rate in the developed world.
#2 In the United States, the corporate tax rate is 35 percent. In Ireland, it is only 12.5 percent. Needless to say, hundreds of American companies have been moving at least some of their operations over to Ireland.
#3 As corporations have become experts at gaming the system, their contribution to federal revenue has gone way down. Back in the 1950s, corporate taxes accounted for about 30 percent of all federal revenue, but in 2009 corporate taxes accounted for just 6.6 percent.
#4 Switzerland has become an extremely attractive tax haven for multinational corporations. In fact, some cities in Switzerland do a booming business in setting up sham headquarters for foreign corporations. For example: Zug, Switzerland is home to 26,000 people and 30,000 companies.
#5 Transocean, the owner of the rig involved in the BP oil spill, has approximately 13,000 employees in Houston, Texas and about a dozen or so employees in Zug, Switzerland. But by moving their “headquarters” to Zug for tax purposes, Transocean has saved about 2 billion dollars.
#6 According to the New York Times, General Electric made a total of 14.2 billion dollars in profits last year. So how much did they pay in taxes to the U.S. Treasury? According to the New York Times, not one penny was paid. However, General Electric disputes this.
#7 Even though Boeing receives billions in federal subsidies every year and even though it has a bunch of juicy government contracts it did not pay a single penny in federal corporate income taxes from 2008 to 2010.
#8 Exxon-Mobil paid $15 billion in taxes in 2009, but not a single penny went to the U.S. government. Meanwhile, their CEO brought in over 29 million dollars in total compensation that year.
#9 It is estimated that U.S. companies have approximately 1.2 trillion dollars “trapped” overseas, because they cannot bring that money back into the country without being subjected to the 35 percent corporate tax rate. But that money certainly could go a long way towards stimulating the stagnating U.S. economy.
#10 Sadly, the 1.2 trillion dollars that is “trapped” overseas is just the tip of the iceberg. The largest corporations and the ultra-wealthy have turned tax avoidance into an art form. The truth is that according to an article in Forbes magazine, there is somewhere between 15 and 20 trillion dollars in offshore bank accounts, brokerage accounts and hedge fund portfolios. In fact, it has been estimated that a third of all the wealth in the world is held in “offshore” banks.
So is there any easy solution to all of this?
No, of course there isn’t. At least not under the current system.
The following is a recent 60 Minutes video report about these problems. It contains some really jaw-dropping stuff….
In light of all of these facts, is there anyone that is still willing to deny that our tax system is deeply broken?
The truth is that there is no fixing it. There are thousands upon thousands of pages of loopholes in the federal tax code and regulations. As you saw in the video above, even some of our representatives in Washington D.C. have lost all confidence that they can come up with new laws that would fix these problems.
If you still believe in the IRS and our federal tax code, I want you to do something. I want you to go buy a copy of the federal tax code and the federal tax regulations and I want you to open them to any section and I want you to start reading them.
Very quickly you will find that the tax code and the tax regulations are an incomprehensible mess. There are thousands upon thousands of ridiculous little rules about almost anything you can imagine, and yet many of our biggest corporations are still able to get away without paying a single red cent.
Does that sound like a good system to you?
At the same time, our incredibly high corporate tax rate is severely damaging our economy. As the big multinational corporations flee in order to avoid paying taxes, they take good paying jobs with them. So unless we all think it is a grand idea for the government to be providing food stamps to 44 million Americans each month we should start trying to figure out a way to start luring some of these jobs back into the country.
Again, our tax system is absolutely broken. Raising taxes on corporations is not going to work. Those corporations that are not currently paying any taxes would still not be paying any taxes, and it would just encourage more companies to leave the country.
Fixing the tax code and the tax regulations is next to impossible. It is a convoluted morass that defies comprehension. Congress simply is not going to “pass a law” that is going to instantly fix these problems.
What we need to do is to entirely start over with a completely new system. Of course that is not going to happen any time soon, but once in a while I allow myself just a little bit of “wishful thinking” in these columns.
In any event, it is important for all of us to understand what current corporate tax policy is doing to this country. The big corporations are paying barely any taxes and this is killing federal revenue, thus making our national debt problem worse. Meanwhile, the corporate tax rate is so high that it is chasing hundreds of companies out of the United States, thus killing job growth.
The United States is not guaranteed to be prosperous forever. The truth is that we are facing a vast array of economic problems and some really bad times for the economy are coming.
The problems we are facing now did not develop overnight and they are not going away any time soon.
Raising taxes is not going to fix our problems. Lowering taxes is not going to fix our problems. Our current tax system is not going to work no matter what the rates are.
We need to fundamentally rethink just about every aspect of our economic and financial systems, but the American people are not ready for that. Most of them just want some smooth talking politician to promise them that a “tweak” here and a “tweak” there will fix everything.
Well, there is no easy fix when it comes to corporate tax policy and there are no easy fixes for the other economic problems that we are facing either.
So enjoy filling out your tax returns this year. Perhaps it will bring you some joy to know that you are paying more taxes than some of the biggest corporations in the entire world.