Report: Corporate execs pushing for territorial system looking out for themselves

Corporate chief executives pushing for a deficit deal are first and foremost looking after their own interests, according to a report released Wednesday by a liberal group.

The Institute for Policy Studies says that multinational corporations could save tens of billions of dollars with a so-called territorial tax system, an idea that has been discussed in deficit talks and would shield most or all of a company’s offshore profits from taxation. 

Some chief executives that recently signed up with a high-profile debt group founded by Erskine Bowles and Alan Simpson have suggested they are willing to themselves pay a higher tax rate in order to help rein in deficits, and as part of a deficit deal that raises revenues and puts tighter controls on spending.

But the Institute for Policy Studies says that, while the executives may seem “moderate,” their stand could also pave the way for cuts to programs used by the poor and the elderly. And the study asserts that, for big business, the benefits from changes to the corporate tax structure could far outweigh the costs of tax increases on top executives.

“If their companies save billions in tax dollars, corporate profits will soar — and CEO pay will skyrocket too,” says the report, written by Sarah Anderson and Scott Klinger. “The small amount of additional personal income tax they might pay would be more than offset by higher bonuses and stock option gains.”

In all, the study says that 63 publicly held companies aligned with the Campaign to Fix the Debt – the group started by Bowles and Simpson, the co-chairmen of President Obama’s fiscal commission – would reap as much as $134 billion with the shift to a territorial tax system. 

Such a move has been discussed in prior debt talks, and was included in the proposal authored by Bowles and Simpson. According to the new study, the CEOs in Fix the Debt also received an extra $41 million in 2011 due to Bush-era tax rates, and two dozen corporations linked to the group paid more to their top executive than in federal taxes. 

The executives involved have also expressed their desire for a deficit deal in broad strokes, preferring to leave the details up to policymakers.

Under the current corporate tax system, multinationals are taxed on profits made anywhere in the world. Corporations can defer paying those taxes until they bring the money to the U.S., and also get credits for taxes paid to foreign governments. 

But Republicans have long said that the current structure, which also includes a 35 percent top tax rate for corporations, hinders American companies’ ability to compete internationally and discourages them from bringing capital to the U.S. Many industrial countries currently employ a territorial system, with Japan and the United Kingdom both making the switch in recent years.

“The U.S. worldwide system of taxation leaves an American business with less after-tax income than its foreign competitor,” said a recent Senate GOP policy study. “In a highly competitive global economy, this can be the crucial difference between an American company being able to compete or not.”

Rep. Dave Camp (R-Mich.), the chairman of the tax-writing House Ways and Means Committee, released a draft territorial plan last year, and GOP lawmakers would like to move toward such a system in any overhaul of the tax code.

But the White House has been officially cool to the idea of a territorial system, even though the idea was reportedly broached in talks between Obama’s administration and congressional Republicans. Vice President Joe Biden also consistently knocked the proposal on the campaign trail this year, saying it would simply allow companies to shift jobs overseas. 

In its study, IPS found that the 63 publicly held companies in the Fix the Debt campaign, out of around 80 overall, had around $418 billion in profits stored offshore, according to public filings. 

From that, the study’s authors used public information released by nine corporations on how much income tax they would pay on repatriated funds, and then applied the top corporate rate of 35 percent to the offshore profits of the other companies. 

That led to the finding that multinationals aligned with Fix the Debt could reap as much as $134 billion from a territorial system. The number could be much lower if the profits had been banked in Germany or the U.K. instead of countries known as tax havens, like Bermuda or the Cayman Islands. 

But Klinger suggested that he thought the estimate was in the right ballpark. “It’s probably something less than that amount,” Klinger told The Hill in a telephone interview. “But I’m not willing to say a lot less than that amount.”

“If it’s money that’s been taxed in England or Germany, the penalty for bringing that money back is small,” Klinger said.

The IPS study, for instance, cites a recent report from a Senate permanent subcommittee on investigations that said that Microsoft, through a strategy called transfer pricing, used subsidiaries in Bermuda, Ireland, Puerto Rico and Singapore to save billions of dollars in taxes. 

Under transfer pricing, multinationals can basically shift services or goods to foreign subsidiaries to slash what they owe in taxes. 

Klinger also echoed some of the concerns that other liberals have expressed about a potential grand bargain, saying the amount of revenue discussed wasn’t enough to assuage concerns about cuts to the safety net.

“That’s a bad deal,” Klinger said.

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