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.