October 27, 2013

TAX WHAT YOU DON'T WANT, NOT WHAT YOU DO:

Marty Sullivan figured out how the world's biggest companies avoided billions in taxes. Here's how he wants to stop them. (Steven Pearlstein, October 26, 2013, Washington Post)

For years, big multinational corporations, waving the banner of competitiveness, have been pushing hard for corporate tax reform. "Reform" means different things to different people, but to multinational corporations, it has meant a sizeable cut in the 35 percent corporate tax rate and an end to all U.S. taxation on profits earned overseas.

Now, however, revelations of elaborate tax dodges by respected companies such as Apple, Google, Microsoft and Starbucks have badly undermined their "reform" push, not just in the United States but around the globe.

At a recent meeting in St. Petersburg, the leaders of the 20 leading industrial nations vowed to push ahead with tough new global standards that would put an end to "stateless" income and limit the ability of firms to avoid taxation by shifting profits to tax havens. After years of competing against one another for corporate investment by offering ever-more-favorable tax regimes, cash-strapped governments have decided to go after the companies rather than each other.

"There's been a race to the bottom, and the multinationals were winning," said Eric Toder, co-director of the nonpartisan Tax Policy Center in Washington.

In Washington, meanwhile, a newly appointed House-Senate conference committee has been instructed to come up with a long-term budget plan by mid-December in the hopes of avoiding a replay of this month's government shutdown. President Obama, along with both Republican and Democratic leaders have expressed hope that some form of corporate tax reform will be included in that budget blueprint.

The chairman of the House Ways and Means Committee, Rep. Dave Camp (R-Mich.), is in the final stages of crafting a "revenue neutral" tax reform proposal that looks to lower the corporate rate by closing the most egregious loopholes while imposing what amounts to a modest minimum tax on overseas profits. The chairman of the Senate Finance Committee, Max Baucus (D-Mont.), promises his own plan by the end of the year that is likely to be even less tax-friendly to overseas operations.

For multinationals, in other words, the political tide seems to have turned. Rather than coming out the winners from corporate tax reform, as they once fantasized, they now face the very real prospect of paying more taxes rather than less-- an outcome Apple's Cook told the Senate his company is prepared to accept.

"For a long time, much of the corporate community was in denial about their tax strategies," a senior partner in the Washington office of one of the big accounting firms told me recently. "The politics of that have now changed -- and a lot of it goes back to the work that Marty Sullivan has done."

As we use social welfare reform to make stock ownership universal and the core of accounts for everything from health care to education to unemployment to retirement, we want businesses focussed on maximizing and reporting their profits. Profits should not be taxed at all, anymore than income should be.   

Posted by at October 27, 2013 7:58 AM
  

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