Monthly Archives: April 2013

Corporate Tax Dodgers Have Clout in Congress

Corporate tax payments have fallen from a rate of about 40% in the 1950s, to around 11% since 2008 – Congress creates tax loopholes and gets campaign donations in return.

The corporate tax system is on the verge of being organized crime. The Institute for Policy Studies found that 25 of the Fortune 500 U.S. companies paid their CEO more than they paid in federal income taxes.

There are many examples of companies taking advantage of legal ways to “launder” their profits to avoid federal and state taxes. For example, Apple is sitting on over $120 billion in cash reserves. A significant portion of that surplus is a result of the company paying just $3.3 billion in taxes on its reported profits of $34.2 billion in 2011 – a rate of 9.8%. A recent New York Times article explained how Apple sets up small offices in low-tax place like Nevada, Ireland, and the Netherlands. There is even a new accounting term the “Double Irish with a Dutch Sandwich” to describe the tax dodges employed by Apple and, as the word spreads, many other companies.

The list of companies that pay almost no taxes is longer than a Clint Eastwood monologue. For example, General Electric brought in $81 billion in profits during the last five years and received a $3 billion refund for “overpayments,” Verizon received a refund in spite of ringing up $48 billion in profits over the last five years. Boeing made a total of $21.5 billion in profits and got a small refund, and Kraft enjoyed a refund in spite of $13.5 billion in profits over five years. Just typing this paragraph makes me as cranky as John McCain.

The result is a laughably small corporate contribution to the common good. The Center for Tax Justice (which is a wonderful non-profit that I donate to) calculated that corporate taxes have fallen from 4% of the Gross National Product in 1965 to 1.3% in 2009. This amount is lower than the percentage in dozens of developed countries including Korea, Japan, England, Norway, Israel, Canada, and Turkey to pick a few off the list.

While the nominal federal tax rate on corporate profits is 35%, no major corporations pay at that level. Since the 1970s, when business lobbying activity became a major force, Congress has created a growing pile of tax breaks for every industry and business activity. The famous oil depletion allowance no longer makes headlines because it is now just one of hundreds of tax give-a-ways. Congressional leaders on key committees ensure a steady flow of campaign donations by making many of these tax breaks temporary – meaning they have to pass through committees and be voted on every two years.

The link to Congressional campaigns is filled with $$ signs. For example, Senator Max Baucus (D-Montana), Chair of the Senate Finance Committee, has raised $12 million over the last six years. $5,353,000 (43%) came from corporate Political Action Committees (PACs); $6,253,000 (50%) came from individual donations totaling more than $200 in any one year; $59,000 (1%) came from labor-related PACs; and $16,928 (0%) came from individual donations of less than $200 in any one year.

We can only imagine how many corporate tax cuts Senator Baucus has voted for in his 23 years on the Finance Committee. Have you give the Senator more than $200 this year? I don’t think you should be expecting a tax cut any time soon.

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Retreat on Filibuster Reform Helps Fundraising

Majority Leader Harry Reid and conservative Democratic Senators decided not to change the Senate’s filibuster rules when the new Senate met in January – the result is a disaster.

Tired of deadlock in the Senate? Blame the Democrats.

Sure, it is the Neanderthals running the Republican Party in the Senate who filibuster every possible improvement in American life, but the Democrats designed the rules that let them do it. Harry Reid may bluster and complain when a Republican filibuster blocks a nomination or stymies a bill, but every other January since 2007 he and a handful of Democratic conservatives prevent Senate liberals from changing the rules to break the power of the filibuster.

Unlike Roberts Rules of Order, which are based upon the principal of majority rule, the procedures adopted by the Senate in the 18th Century allow Senators to frustrate majority rule by talking without interruption – thus blocking any vote. Senate rules say that only a super majority – it was 66 Senators until the 1970s, now it is 60 Senators – can cut off debate and force a vote.

The filibuster is obnoxious in and of itself because, until the 1990s, the filibuster or the threat of a filibuster was used primarily by southern Senators to block civil rights legislation. As a result, none of the many civil rights bills approved by the House of Representatives between 1869 and 1957 – including voting rights acts, anti-lynching laws, and fair employment laws – passed the U.S. Senate. Only under the pressure of the Civil Rights movement in the 1960s were laws finally passed to outlaw discrimination and restrictions on voting rights.

Now the Republican Party has used the filibuster 380 times since Democrats re-took control of the Senate after the 2006 Congressional elections. Here are examples of legislation passed by the House during the 111th Congress (2009 and 2010) that received more than 50 votes in the Senate, but were blocked by a Republican filibuster – The DREAM Act, which would have provided a path to citizenship for children of undocumented immigrants; the Employee Free Choice Act, which would allow employees to create a legal union by collecting signatures rather than participating in a company-dominated election; a Public Option provision in the ObamaCare Act; and the Buffet Rule, which would have created a 30% minimum tax for individuals with incomes over $1 million.

There was a strong movement among newer Democratic Senators to change the filibuster rule when the 113th Congress started, but in the end Harry Reid, Diane Feinstein, Carl Levin and other conservative Democrats, apparently without any complaint from the White House, settled for a few minor reforms. The impact has been painful. Under the threat of a filibuster, the Democratic leadership has dropped provisions banning assault weapons and large magazine clips from the Senate gun control bill. In March, the President had to withdraw his nomination of Caitlin Halligan, a liberal lawyer who pursued law suits against gun manufacturers, to the U.S. Court of Appeals for the District of Columbia Circuit – a training ground for future Supreme Court justices because of the prominence of the cases brought in Washington.

This frustrating state of affairs allows the Democratic Party leadership to have it both ways – trumpeting its progressive positions during elections – but collecting campaign cash from rich donors who understand that results are what count.  You have to think about how their main constituents are the people that donate millions of dollars for their campaigns – people who are not excited about economic change.

Tax Cheats are Forcing Painful Federal Cuts

Corporate profits have surged since the Financial Crisis, but these companies are using dozens of tax loopholes to starve the U.S. government of revenue – pushing up the deficit and forcing Congress into making painful budget cuts.

One sign of a dysfunctional political system is when major corporations refuse to pay taxes.

As we have every year since right-wing Republicans found that cutting taxes and creating deficits was good politics, there will be an enormous outcry about taxes this April. I propose we turn the spotlight on this county’s biggest tax cheaters – large corporations that think they are doing us a favor by operating in the U.S. instead of Switzerland or Dubai.

They claim to be job creators, but they certainly aren’t tax generators. The federal Joint Committee on Taxation estimates that in 2013 about $154 billion in special corporate tax breaks will be granted through 135 individual sections of the U.S. tax code. This staggering sum is nearly twice as much as the more than $80 billion in spending cuts taking place through “sequestration.”

One example is the Active Financing exemption for multinational banks and corporations, which was renewed as a little noticed part of the tax legislation passed to avoid the fiscal cliff. This exemption allows multinational firms to set up foreign subsidiaries that receive interest and insurance payments, and carry out financing activities for American exports. Citizens for Tax Justice says:

[The exception is one of the primary reasons General Electric has paid, on average, only a 1.8% effective U.S. federal income tax rate over the past ten years. G.E.’s federal tax bill is lowered dramatically with the use of the active financing exception provision by its subsidiary, G.E. Capital, which Forbes noted has an “uncanny ability to lose lots of money in the U.S. and make lots of money overseas.”]

The exemption, which was eliminated in the 1986 Tax Reform legislation signed by President Reagan, was re-enacted over President Clinton’s veto in 1997. It is renewed each year through the efforts of The Active Financing Working Group, a coalition of multinational companies that includes G.E., J.P. Morgan Chase, and Caterpillar. The Working Group paid $540,000 in lobbying fees to Elmendorf Strategies in 2012 according to Senate disclosure forms.

These tax subsidies continue to flow to corporations even as their profits have soared since 2009. General Electric has raked in $81 billion in profits over the last five years and received a $3 billion refund as a compliment to its tax lawyers.

This is not merely an issue of fairness – corporate tax avoidance, which goes on at the state and local level as well, is bleeding our nation’s ability to educate our youth, send kids to college, care for the sick, and support the elderly and the disabled. In an era of economic decline it is a crime.