Perhaps one of the most important issues facing our economy today is the corporate tax rate and the way in which companies can scheme and loophole their way to paying far less than their fair share. It is an issue that is unlikely to undergo a sea change from either party in November, though, as Mitt Romney has pledged to lower corporate tax rates and Barack Obama has reversed course and begun to take campaign money from SuperPACs, the funders of which are very interested in maintaing the status quo.
Corporations in the United States are required by tax law to pay 35 percent on their worldwide profits, but by abusing loopholes few come even remotely close to that number. As we noted last week, GE has paid an effective rate of 2.3 percent over the past ten years. Now, an article by Bloomberg’s Richard Rubin suggests that General Electric is among the corporations who are currently holding $187 billion in nontaxable offshore accounts:
The 70 U.S.-based companies studied hold $1.2 trillion in profits around the world. GE and Pfizer have built up the most money outside the U.S., with $102 billion and $63 billion respectively, according to securities filings. Apple Inc. (AAPL), Google Inc. (GOOG) and Microsoft Corp. (MSFT) were among the companies that increased their accumulated overseas profits by more than 40 percent in 2011.
As U.S.-based companies expand globally, they keep profits overseas, legally out of the reach of the Internal Revenue Service. Lawmakers from both political parties point to the stockpiling as a symptom of a failed corporate tax system, even while they remain deadlocked over whether the U.S. should impose higher or lower taxes on its companies’ global profits.
“You’re seeing more and more business go on overseas, because that’s where an increasing amount of the global purchasing power is,” said Matt Miller, director of public policy at the Business Roundtable, a Washington-based association of chief executives at large companies that backs lower taxes on overseas profits. “We need to get a competitive tax system that is not antiquated and has all the complexities we have today.”
Rather than raise or lower the tax rate, why not just fix the system? President Obama has had four years to deal with the problem and has not. Romney made his money off of
helping companies take advantage of tax codes, so he's no help either.
Neither are House Republicans, led by Dave Camp, the "top tax writer" according to Bloomberg:
Republicans, including Dave Camp of Michigan, the top tax- writer in the House of Representatives, make the opposite argument. They say the residual tax that U.S. corporations face makes them less competitive in global markets and discourages companies from reinvesting their profits at home.
President Obama has "proposed a global minimum tax on foreign profits," while Republican candidates are on the opposite end of the spectrum:
Camp has said he prefers to address repatriation as part of a tax-code overhaul. His draft proposal would shift the U.S. to a territorial tax system that exempts 95 percent of foreign profits. That would resemble the systems of other major economies, such as the U.K., Japan and Germany.
All four Republican presidential candidates have endorsed a territorial tax system. In an essay in the Boston Herald yesterday, Mitt Romney wrote that companies will continue to park profits outside the U.S.
“With our high rates and our punitive incentives, we are shooting ourselves in the foot with a machine gun,” he wrote. “This has to end and I will end it.”