A package proposal for repatriation
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As divided as our country may be, one issue where there appears to be strong bipartisan agreement is the need to rebuild our nation’s infrastructure. Democrats have supported this for years, and President Trump has made it one of the centerpieces of his domestic program. The question is how we’re going to pay for it. Many are eyeing the huge pot of money — $2 trillion to $3 trillion — sitting offshore courtesy of U.S. corporations who have stashed it there, because they don’t want to pay taxes on it.

With the infrastructure proposal looming large, that pot of money has become an attractive answer. But the big questions are what tax rate reduction would be a sufficient incentive for corporations to finally pay the tax owed on their offshore profits and whether we should even consider such a rate reduction without finally and unequivocally closing the loopholes in our tax laws that have created this untaxed offshore profit hoarding.

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First, some facts. The U.S. corporate tax rate is nominally 35 percent. With various legerdemain and loopholes, however, the U.S. corporate tax rate is effectively around 13 percent. Because of that, corporations now contribute the smallest share of federal revenue in decades, down to 10.8 percent in 2015. That reduction in the corporate share of the federal tax burden has occurred despite a dramatic increase in profits. Since 1952, corporate profits have increased 55 percent while the corporate share of federal revenue has decreased 68 percent.

 

Some argue that a rate reduction or even a tax holiday is needed to bring offshore funds back home. Let’s not forget that the multinational corporations have benefitted from the U.S. copyright and patent laws that protected the creativity that produced those profits and the research and development tax credits that helped fund the discoveries that are the basis for them. So, why shouldn’t corporations pay their fair share of what it costs for this support by our government? The short answer is they should.

The tax haven loopholes they’re using have no purpose other than tax avoidance. Most deductions and credits in our tax law have arguably some economic or social justification. One may not agree that a particular justification is adequate to support favorable tax treatment — but at least there is an economic or social justification. For instance, you may not support favorable tax treatment for oil and gas exploration, accelerated depreciation, or deductible charitable contributions by corporations — but by any account there is a need for energy production, investment in more efficient new equipment and support of our charities and educational institutions.

But the loopholes that enable U.S. companies to direct their profits to their own shell companies in tax havens to avoid paying U.S. taxes have no arguable justification. When we investigated those loopholes while I was chair of the Permanent Subcommittee on Investigations in the Senate, we asked companies why they were shifting their revenue to tax havens — what was the economic justification for doing so? The answer we got back invariably was, “Tax havens are legal.” No one ever referenced lowering production costs or being closer to markets, or some other economic explanation. The answer was simply to reduce taxes, and if you don’t like our using tax havens, then “change the law,” they said.

Well, let me suggest a package deal that would do just that: 1) a discounted tax rate for repatriating the $2 trillion to $3 trillion; 2) using the hundreds of billions of dollars in resulting tax collections to fund needed infrastructure; and, equally critical, 3) closing the unjustified loopholes that generated these huge offshore funds in the first place so it doesn’t happen again.

In 1961, our country faced the same problem — large sums of money being stashed offshore by U.S. corporations to avoid paying taxes. In seeking to end it, then-President Kennedy said, “Recently more and more enterprises organized abroad by American firms have arranged their corporate structures aided by artificial arrangements between parent and subsidiary regarding intercompany pricing, the transfer of patent licensing rights, the shifting of management fees and similar practices which maximize the accumulation of profits in the tax haven … I recommend elimination of the tax haven abuse.” Congress responded by passing what is called Subpart F of the tax code. For years, Subpart F worked to end the abuse. But loopholes have now eroded the power of Subpart F so that we find ourselves in the same situation we were in over 50 years ago.

We need to close those unfair tax loopholes immediately and conclusively and restore the strength of Subpart F; waiting for comprehensive tax reform to do it could take years. The three-part package I suggest will do just that by tying repatriation of offshore corporate funds to both an infrastructure program and to legislation that once and for all would close those unconscionable tax loopholes that cost our treasury $100 billion to $200 billion each year and which no one can defend.

Carl LevinCarl LevinA lesson on abuse of power by Obama and his Senate allies President Trump, listen to candidate Trump and keep Volcker Rule Republicans can learn from John McCain’s heroism MORE (D) represented Michigan in the U.S. Senate for 36 years. He served as chairman of the Permanent Subcommittee on Investigations from 2007 to 2014, during which time he led major investigations into offshore tax havens.


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