What are the sources of this phenomenon that has some experts puzzled? Actually, the answers are pretty straightforward.
First of all, starting in 2008, our lawmakers in Washington, Republicans and Democrats alike, enacted a series of corporate tax cuts, which are officially estimated to cost $185 billion from fiscal 2008 through fiscal 2012. In fiscal 2011 alone, these tax cuts reduced corporate tax payments by about a quarter.
Second, American multinational corporations are getting more and more aggressive at shifting what should be U.S. taxable income to foreign tax havens. From 2007 to 2010, the 280 big corporations in CTJ’s study increased their offshore profit hoards from $771 billion to $1,266 billion, a jump of 64 percent. Much, although not all, of this is parked in tax havens.
A single company, Apple, increased its “total foreign holdings of cash, cash equivalents and marketable securities” from $6.7 million in September 2007 to $54.3 billion by September 2011. Apple’s SEC filings reveal that almost all of this gigantic stash was built with profits that have never been taxed by any country.
So, now that the news is out documenting widespread, budget-busting corporate tax avoidance, are our politicians clamoring to address the problem? Hardly. Instead, Republicans are falling over themselves to propose still more and even bigger corporate tax cuts, while many Democrats, including President Obama, seem to feel that the current level of corporate tax payments is just about perfect.
They’re wrong. Instead of repeating the failed policies of the past, we should shift gears.
Just as Ronald Reagan and a bipartisan Congress did in the Tax Reform Act of 1986, we should crack down on wasteful, often harmful corporate tax subsidies. The 1986 reforms curbed useless tax breaks for oil companies, public utilities, defense contractors and a wide array of corporate special interests. It rewrote the way we tax multinational corporations to make it harder for them to avoid their U.S. tax responsibilities by moving their U.S. profits to foreign tax havens. And by doing so, it made our economy more productive and increased corporate tax payments by more than a third.
Sadly, since Reagan’s reforms, major loopholes have crept back into the corporate tax code, particularly ones for multinational companies. These days, corporate offshore profit-shifting alone is estimated to cost the rest of us taxpayers as much as $100 billion a year. That adds up to well over $1 trillion over a decade.
Indeed, if just the 280 corporations that CTJ analyzed in our 2011 study had paid the full 35 percent corporate tax rate on their U.S. profits over the 2008-10 period (instead of only half that much), they would have paid an additional $223 billion in corporate income taxes.
While revenue-raising corporate tax reform can’t solve our entire deficit problem, it can produce huge savings to help reduce excessive debt while protecting essential public programs. Among the many hard choices about public spending and taxes we’ll have to face in the upcoming years, the choice between scrapping corporate tax subsidies and slashing Social Security and Medicare ought to be one of the easiest.
McIntyre is director of Citizens for Tax Justice.