Every CEO running a big multi-national company in America knows that, when times are tough, they have one sure way to save a lot of money and a place to go for cash: the U.S. Treasury. This is nothing new. But, today, we have two flashing red lights about how your money is being siphoned away: one astounding example of what has already come to pass and one alert on the horizon of another robbery about to take place that can still be stopped.
THE PAST ROBBERY
Last month, I criticized the appointment of General Electric CEO Jeffrey Immelt to head the White House's President’s Council on Jobs and Competitiveness. I thought it was preposterous that the president would appoint a man who heads a company that has done more to eliminate good paying jobs--destroying hundreds of thousands of union jobs here while creating a sea of new jobs in low-wage countries world-wide. But, the main point I focused on was GE's unfailing role as America's top tax avoider.
The New York Times digs much deeperinto that today:
The company reported worldwide profits of $14.2 billion, and said $5.1 billion of the total came from its operations in the United States.
Its American tax bill? None. In fact, G.E. claimed a tax benefit of $3.2 billion.
Let me stop there for a moment. Absorb that, please: GE wants YOU to pay it $3.2 billion.
You cannot make this up--though perhaps it is logical and feasible in the country where The Audacity of Greed has no limits.
More from the article:
Its extraordinary success is based on an aggressive strategy that mixes fierce lobbying for tax breaks and innovative accounting that enables it to concentrate its profits offshore. G.E.’s giant tax department, led by a bow-tied former Treasury official named John Samuels, is often referred to as the world’s best tax law firm. Indeed, the company’s slogan “Imagination at Work” fits this department well. The team includes former officials not just from the Treasury, but also from the I.R.S. and virtually all the tax-writing committees in Congress.
While General Electric is one of the most skilled at reducing its tax burden, many other companies have become better at this as well. Although the top corporate tax rate in the United States is 35 percent, one of the highest in the world, companies have been increasingly using a maze of shelters, tax credits and subsidies to pay far less.
In a regulatory filing just a week before the Japanese disaster put a spotlight on the company’s nuclear reactor business, G.E. reported that its tax burden was 7.4 percent of its American profits, about a third of the average reported by other American multinationals. Even those figures are overstated, because they include taxes that will be paid only if the company brings its overseas profits back to the United States. With those profits still offshore, G.E. is effectively getting money back. [emphasis added]
Remember the profits overseas point--I'll come back to that. But, the key point here is that, when you hear conservatives and foolish Democrats regurgitate the stupid idea that American-based companies suffer from some competitive disadvantage worldwide because of high corporate tax rates, it's nonsense. The tax rates are not the problem--and, in fact, the effective tax rates are quite low because of the manipulation of our tax code.
More:
The assortment of tax breaks G.E. has won in Washington has provided a significant short-term gain for the company’s executives and shareholders. While the financial crisis led G.E. to post a loss in the United States in 2009, regulatory filings show that in the last five years, G.E. has accumulated $26 billion in American profits, and received a net tax benefit from the I.R.S. of $4.1 billion.
But critics say the use of so many shelters amounts to corporate welfare, allowing G.E. not just to avoid taxes on profitable overseas lending but also to amass tax credits and write-offs that can be used to reduce taxes on billions of dollars of profit from domestic manufacturing. They say that the assertive tax avoidance of multinationals like G.E. not only shortchanges the Treasury, but also harms the economy by discouraging investment and hiring in the United States.
“In a rational system, a corporation’s tax department would be there to make sure a company complied with the law,” said Len Burman, a former Treasury official who now is a scholar at the nonpartisan Tax Policy Center. “But in our system, there are corporations that view their tax departments as a profit center, and the effects on public policy can be negative.” [emphasis added]
The rest of the article is important to read for its added detail. But, let me make a few points here:
First, when I said that they are taking your money, here is what happens: when GE, or any other corporation gets a tax break, it comes out of the pockets of every other taxpayer--either because the government has less money so it has to cut a service or it has to make up the lost revenue by raising taxes...which, certainly in the past 30 years as a progressive tax system has been destroyed, has meant a heavier burden on the middle class.
Second, we have to hold both parties accountable for this stupidity. Well, it's not stupidity really--it's self-interest and a direct result of the corrupt campaign finance system. If you look at the votes on tax breaks, they are bi-partisan--and there is usually a fairly easy road to track from tax breaks to campaign contributions. So, sure, GE and others are doing what they can under the law--but this doesn't just happen magically. This is legalized corruption: corporations buying members of Congress so that can buy tax policy that hurts every person in the country.
Third, and the central point here: GE does not care what happens in this country. GE does not care about creating good jobs here--or even creating any jobs here. This is not a nationalistic debate and we need to get real about the dynamic. GE, and most American-based corporations, will only look at decisions based on a simple premise: where can we make the fastest buck?
Now, on that last point, you may say, "of course". Yes, that is true: that is what most corporate leaders are driven to do in this system. But, that is where our elected leaders are supposed to play a role: it is their job to balance what drives people in the private sector. And, to focus just on tax policy here, those elected leaders have failed in their jobs.
THE FUTURE ROBBERY ABOUT TO HAPPEN THAT CAN BE STOPPED
Just when you thought it could not get more putrid, up spring a new idea: let's give all these corporations that have made profits overseas and kept their profits overseas a "tax holiday" so, out of the goodness of their hearts, they can "repatriate" those profits back to the U.S. at an astoundingly low rate.
The corporate push here comes all decked out with a new website called "Win America" Investing Here At Home". It is no mistake that the website has the usual patriotic color scheme and that the slogan is designed to tug at the president's own poll-tested "Winning The Future." This is a massive sales job aimed at:
Providing American businesses with incentives to invest at home is a common sense solution that will immediately inject up to $1 trillion into our economy and provide businesses with the security and certainty they need to help get Americans back to work. The time to act is now. Let's invest the money here at home – not spend it overseas.
The most cynical piece of this campaign is this, as pointed out in a debate yesterday on CNBC with The Wall Street Journal's/Club For Growth Stephen Moore (see below for the amusement value): corporate CEOs are exploiting the great jobs crisis to rip off the U.S. Treasury by lying about what they will do with the money they will pocket from a tax "holiday". Every politician is now vulnerable to the question of "what did you do to get me a job?" so the phony promise of these American-based multi-national companies that they will create jobs is just that: phony.
Why is this a lie? Because, as I quote in the CNBC debate, the famous philosopher Yogi Berra, this is deja vu all over again. We've seen this picture before: in 2004, Congress fell for this sham and granted a tax "holiday" on foreign profits. What jobs did we get for that? Zippo. Virtually nothing.
From the Citizens for Tax Justice:
Some corporate leaders and anti-tax activists argue that if Congress cannot provide a comprehensive reform of the corporate income tax that lowers rates, then perhaps Congress can instead provide another repatriation “holiday” like the one enacted in 2004. Offshore profits that were repatriated under that deal were taxed at a super-low rate of just 5.25 percent. At the time, corporate leaders claimed that if Congress nearly eliminated taxes on offshore profits on a temporary, one-time basis, then the corporations would repatriate those profits and use the money to create jobs.
The argument that the 2004 repatriation holiday would create jobs never made sense, because companies already had access to the offshore money by borrowing. Thus it is no surprise that the data show rather conclusively that the 2004 repatriation holiday did nothing to create jobs. Repeating this holiday will once again reward the corporate tax dodgers and encourage them to shift even more profits offshore in anticipation of still another repatriation holiday.
To be sure, the 2004 repatriation holiday legislation did technically “require” that repatriated profits had to be used “for the funding of worker hiring and training, infrastructure, research and development, capital investments, or the financial stabilization of the corporation for the purposes of job retention or creation.” But even the authors of this supposed “requirement” know it was meaningless, since money is fungible. Companies could and did simply say that their repatriated earnings went to job creation, while actually using the money for whatever purpose they desired (including continuing to shift jobs overseas). In fact, empirical studies found that most of the money was ultimately returned to shareholders through stock repurchases.
I happened to see Rep. George Miller at a small discussion yesterday in New York just before I went to duel on CNBC. Miller said he remembers the 2004 deal and he told me that he asked CEOs in Silicon Valley what they did with the repatriated profits and they admitted to him that almost none of it went to job creation.
The second part of this big lie is obvious: corporations are sitting on one trillion dollars in cash RIGHT NOW that could be used to create jobs. If the corporate world is so interested in helping American workers, they have the cash to do that TODAY, without ripping off the American taxpayer again.
Let's consider this truth about the tax "holiday": corporations shipped jobs and investment overseas in order to make money, often times by setting up shop in countries where wages were far lower. Or they simply set up tax havens that nothing to do with actual producing abroad--they might set up a tax shelter that simply "owned" a patent to a drug and, then, all the profits from that drug from around the world were siphoned to that tax haven. Factoid: Citigroup--the same global bank that YOU helped keep from collapsing during the financial crisis--has 427 foreign tax shelters, many engineered under the leadership of that great patriot, Robert Rubin.
So far, the president has said he opposes the tax "holiday"--unless it's part of a broader tax deal.
No, that's a dumb position. Our position should be: no tax "holiday" and a repeal of all the tax laws that allows the deferral of taxes until they are "repatriated". Pay the taxes. Pay them now--like all regular Americans are required to do.
If you can tell, I am pissed. The audacity, the sleaziness of this effort is beyond belief. People are crying out for help--and the cynical response from the corporate sector is: how can we exploit the tragedy in America?
As for me, the one thing I can do today is to leave now (which is why I will likely respond much later) to attend the 100th commemoration of the Triangle Shirtwaist Fire which helped spark the movement for better working conditions in sweatshop America--a movement we truly need now to stop the robbery by GE and its circle of tax cheats and avoiders.