Project
Zero Corporate Taxes
by
Phil Mattera, Dirt Diggers Digest
Google’s Project Zero works on computer security, but that
name could more be more accurately applied to the efforts of high-tech giants
and other large U.S. corporations when it comes to federal tax policy: they
want to pay less and less, and ultimately nothing at all. President Obama’s new
tax reform proposal could end up assisting the business campaign.
Obama
is endorsing the long-standing business proposal for a reduction in the
statutory rate (from 35 to 28 percent) while at the same time offering an even
lower rate (14 percent) on repatriated foreign profits being held abroad and a
19 percent rate on future overseas business income (minus foreign taxes paid).
The revenue from the tax on accumulated offshore earnings would be earmarked
for infrastructure projects.
Much
of the reaction to the plan has framed the offshore provisions as a big tax hit
on companies such as Apple, Microsoft and Citigroup. The Business Roundtable accused Obama of seeking “steep tax increases
on businesses that will negatively impact their competitiveness.”
This
view make sense only if you take as the norm the current effective tax rate
imposed on these cash hoards, which is zero. In reality, that cash — which in
the case of Apple alone exceeds $130 billion — should be seen as the ill-gotten
gains of systematic international tax dodging and thus hardly worthy of
preferential tax treatment.
This was made clear with respect to Apple in a 2013 report by the Senate investigations subcommittee that described a wide array of loopholes and tricks used by the iPhone producer.
Nonetheless, CEO Tim Cook came to Capitol Hill and testified that Apple was not using gimmicks but simply managing its foreign cash holdings prudently. Sen. Rand Paul was taken in by this deceit and declared that Apple was owed an apology.
Too
many members of Congress are willing not only to accept the legitimacy of
offshore cash hoards but also to go along with misguided schemes to
“incentivize” companies to bring some of that money back home.
Last month, Sen. Paul and his Democratic colleague Barbara Boxer called for a “tax holiday” that would allow the repatriation of foreign profits with a tax rate of only 6.5 percent.
This would be a replay of 2005 holiday that brought some $300 billion back to the United States, but it turned out that very little of the money was used to stimulate investment and job creation, as proponents had promised. Instead, much of it was spent on corporate stock buybacks.
Last month, Sen. Paul and his Democratic colleague Barbara Boxer called for a “tax holiday” that would allow the repatriation of foreign profits with a tax rate of only 6.5 percent.
This would be a replay of 2005 holiday that brought some $300 billion back to the United States, but it turned out that very little of the money was used to stimulate investment and job creation, as proponents had promised. Instead, much of it was spent on corporate stock buybacks.
Although
he is not using the term, Obama’s 14 percent proposal amounts to the same kind
of dubious tax holiday scheme. His higher rate is being regarded in business
circles as simply an opening offer that corporate lobbyists will bring down to
“reasonable” levels.
The
corporate position on repatriated profits looks all the more unreasonable in
light of the recent financial performance of leading offshore cash hoarder
Apple. The company has more money than it knows what to do with. In January it reported quarterly profits of $18 billion, thanks to the
sale of a ridiculous number of iPhones. This was a record not only for Apple
but was the biggest quarterly net in corporate history.
Apple
may not be sure how to use that windfall, but like many other large companies
it is certain what it does not want to do: pay its fair share of taxes.