The largest U.S.-based companies expanded their untaxed offshore stockpiles by $183 billion in the past year, increasing such holdings by 14.4 percent, according to data compiled by Bloomberg. [...]The reason for this, corporations and their apologists explain, is the supposedly excessive U.S. corporate tax rate compared with other developed nations. If they bring their overseas profits home, they say, they have to pay more than they think they should in taxes. More than what foreign rivals pay. But what they think they should pay and what is reasonable for them to pay are two different matters.
The build-up of offshore profits—totaling $1.46 trillion for the 83 companies examined—is increasing because of incentives in the U.S. tax code for booking profits offshore and leaving them there. The stockpiles complicate attempts to overhaul the tax system as lawmakers look for ways to bring the money home and discourage profit shifting. [...]
A report last year by analysts at JPMorgan Chase & Co. (JPM) estimated that all U.S.-based companies had $1.7 trillion in accumulated offshore profits. In the data compiled by Bloomberg, 83 companies had about 75 percent of last year’s total, which suggests that the total for all companies now exceeds $1.9 trillion.
Groups like the Business Roundtable claim the U.S. corporate rate is the highest among those developed nations. But that's not so. While the statutory rate of 35 percent is high, the effective rate, what actually gets collected, is quite low comparatively speaking. In fact, the effective rate slipped to a four-decade low in fiscal 2011, just 12.1 percent. And, as the charts above show, the United States not only taxes corporations less than other nations, it also raises less revenue from corporate taxes.
Ignoring the fact of the actual tax situation, or rather twisting the truth about it, the corporations accumulating the vast overseas hoard say they have a "solution." It's called "territorial" taxation. Simply put, in its purest form, such a system would put profits earned overseas permanently out of the reach of the U.S. Treasury. The corporations would then be incentivized to bring their profits home to invest in America instead of stashing them in the Caymans.
Malarkey, as Vice President Joe Biden would say. What really would happen is that corporations would do all in their accountants' power to juggle and jiggle their earnings reports to claim that profits generated in the United States have actually been generated overseas. A cynic might call that "laundering." Pure territorial taxation would also encourage corporations to ship more jobs offshore so they could actually make more profits overseas. Please continue reading below the fold to read about corporate hoarding and taxation.
There is little doubt that companies are already moving large amounts of their profits overseas already. The Congressional Research Service issued a report in January stating:
Consistent with the findings of existing research, the analysis presented here appear to show that significant shares of profits are being reported in tax preferred countries and that these shares are disproportionate to the location of the firm’s business activity as indicated by where they hire workers and make investments. For example, American companies reported earning 43% of overseas profits in Bermuda, Ireland, Luxembourg, the Netherlands, and Switzerland in 2008, while hiring 4% of their foreign workforce and making 7% of their foreign investments in those economies. In comparison, the traditional economies of Australia, Canada, Germany, Mexico and the United Kingdom accounted for 14% of American MNCs overseas’ profits, but 40% of foreign hired labor and 34% of foreign investment. This report also shows that the discrepancy between where profits are reported and where hiring and investment occurs, as examples of business activity, has increased over time.You may remember that the Romney-Ryan campaign backed such a plan. Joe Biden spoke out vociferously against it. But the Obama administration is at least open to the idea now, or rather some hybrid form that doesn't allow repatriated overseas profits to go completely untaxed:
A White House official on Thursday [Jan. 31] said Obama is eager to "pursue corporate tax reform that lowers the rate ... but does not believe that a pure territorial system is the best way to achieve this goal."So, instead of cutting the tax rate on overseas profits to zero, it might be cut to 20 percent or even to that 12 percent that is now the effective rate. All this is set against an effort by Republicans and many Democrats to lower the overall statutory corporate tax rate on U.S.-generated profits to 28 percent or 25 percent form the current 35 percent.
Wherever the overall corporate rate for future earnings might be set, there's also talk about setting a special tax rate to get that hoard of nearly $2 trillion repatriated. Rubin notes that Republican Rep. Mike Enzi of Wyoming and Republican Rep. Dave Camp of Michigan, the chairman of the House Ways and Means Committee, have developed a plan that would tax the accumulated profits at 5.25 percent, allowing corporations eight years to pay up. This rate would apply whether or not they bring the profits home. Other elected officials, including Democrats such as Sen. Ron Wyden of Oregon, also want to see overseas profits repatriated at a lower rate but under provisions for keeping them from shifting new profits overseas.
Lucky for the plutocrats that they don't have to depend only on themselves to do all the tedious work of redistributing the nation's wealth upward.