On July 24, 2014, John W. Schoen writes on CNBC:
A once-obscure tax dodge known as a corporate “inversion” is turning the debate over U.S. tax reform upside down.
In an inversion, a U.S. company sets up or buys another company in a country with a lower corporate tax rate and then calls the new country home—thereby dodging U.S. taxes it would otherwise have had to pay.
The trick is more than three decades old, but a wave of inversions this year has prompted the Obama administration to call on Congress to slam the loophole shut.
Read MoreObama presses to close corporate tax loophole ‘inversions’
How does it work?
When a company undertakes an inversion, it’s basically just moving its legal address outside the country for tax purposes. That lets companies move some of their profits to their new homeland and pay less in taxes to the U.S. Treasury. Nothing else moves; it’s business as usual for their American operations, employees and customers.
The White House estimates the Treasury could lose out on as much as much as $20 billion over the next decade. So the administration wants to require companies that claim they’re no longer American to be more than 50 percent owned by foreigners. That would make new inversions much more difficult to pull off.
But aren’t corporate taxes higher in the U.S than most developed countries?
It’s true that the statutory tax rate—including state and local taxes—is close to 40 percent, the highest among the developed world. But U.S. companies apply a long list of tax credits, subsidies, loopholes and other giveaways, so most of them pay much less than the top rate. Some, according to an analysis by Citizens for Tax Justice, have figured out how to pay no tax at all.
Total corporate federal taxes fell to about 12 percent of profits from U.S.-based activity in 2011, according to a Congressional Budget Office report. In a separate study, the CBO found that the average tax rate in 2011 among developed countries was 3 percent of gross domestic product—compared with 2.3 percent of GDP in the U.S.
So how much money is Uncle Sam losing from these corporate tax dodgers?
So far this year, only nine companies have flipped their corporate tax base upside down, including banana distributor Chiquita Brands International and drug maker AbbVie. But those moves have drawn lots of attention—and prompted other U.S. multinationals with large overseas holdings to consider heading for the corporate tax exit.
Some companies have already stashed assets and accumulated earnings outside the country—hoping that Congress will eventually lower the tax rate and allow them to pay less when they bring that money home. By some estimates, as much as $2 trillion in corporate cash is sitting outside the U.S.—money that could otherwise be reinvested at home to expand domestic operations and create more jobs.
Why doesn’t Congress just clean up the corporate tax code?
Corporations have been lobbying Congress for years to lower the corporate tax rate—which would mean paring back a thicket of tax credits, subsidies and complex rules that everyone agrees needs an overhaul. But each of those loopholes has a company or industry lobbying to protect it.
A wave of inversions could make it even harder for Congress to pull off a “revenue neutral” tax reform package. To offset the money lost by lowering the top rate, Congress would have to close loopholes and subsidies. But if more companies dodge the American tax code altogether, those added revenues will be harder to find. The more companies shrink the overall pipe of corporate tax revenues, the harder it will be to make tax reform “pay for itself.”
Read MoreCEOs to Obama: Tax reform, not an inversion Band-Aid
In any case, the tax reform debate has become mired in the ongoing political dysfunction that has already pushed the country near a debt default, temporarily shut down the government and, most recently, exhausted the highway fund that’s needed to fix a national pothole epidemic.
Given that track record, it’s hard to see how Congress will ever be able to tackle an issue as complex and divisive as tax reform. So some companies aren’t waiting.
This is a “big picture” problem that our nation and other nations face. Because the system facilitates non-human capital asset wealth being constantly monopolized by the wealthy ownership class, which is often referred to as “the 1 percent,” who are the primary owners of American corporations, without a stiff corporate income tax it will be virtually impossible to incentivize corporations to pay out fully their earnings to their stockholders, who would be ALL taxed at the personal tax rate. We should want to eliminate double taxation (at the corporate and personal levels) to incentivize corporations to issue and sell new stock to raise monies to invest in new plant and machinery capital assets to create economic growth. This is the pathway to creating new owners and broadening wealth-creating, income-producing capital ownership to EVERY child, woman and man. EVERY citizen should be empowered equally to have access to insured, interest-free capital credit loans issued by local banks backed by the Federal Reserve to acquire new stock issues in qualified corporations with the principal and insurance fee repayable out of the FUTURE earnings of the investment. This would provide American corporations with all the monies they would need to grow, which in turn would substantially accelerate the growth of the economy, create new capital owners who would benefit from a new income source, and create new job opportunities as the economy revs up to produce general affluence for EVERY citizen. These policies would create a nation of “customers with money,” who overtime can build substantial financial security and eliminate reliance on taxpayer-supported government.
If we further lower or eliminate corporate income tax rates we eliminate our ability to incentivize corporations to finance new growth by creating new owners, without taking away ownership from those who are already owners.
We need to define a foreign corporation with at least better than 50 percent ownership vested with foreign nationals and an American corporation with at least 50 percent American citizen ownership. We also need to look at tariffs on non-American corporations who would have tax advantages over American corporations.
We also need to condition awarding ALL taxpayer-supported federal contracts (corporate welfare) on the basis that EVERY company vying for a government contract demonstrate that they are broadly owned including ownership by their employees. We need to ensure that if a corporation wants the advantages of being an American company then they should not be able run away from America to avoid paying taxes. Either American corporations pay a stiff corporate tax and remain narrowly owned or they pay no corporate tax but are structured such that they are owned broadly and by their employees. Such policies will stimulate a new era in American technological innovation.
Support the Capital Homestead Act at http://www.cesj.org/learn/capital-homesteading/capital-homestead-act-a-plan-for-getting-ownership-income-and-power-to-every-citizen/ and http://www.cesj.org/learn/capital-homesteading/capital-homestead-act-summary/.
Support the Unite America Party Platform, published by The Huffington Post at http://www.huffingtonpost.com/gary-reber/platform-of-the-unite-ame_b_5474077.html as well as Nation Of Change at http://www.nationofchange.org/platform-unite-america-party-1402409962 and OpEd News at http://www.opednews.com/articles/Platform-of-the-Unite-Amer-by-Gary-Reber-Party-Leadership_Party-Platforms-DNC_Party-Platforms-GOP-RNC_Party-Politics-Democratic-140630-60.html.
