mykeystrokes.com

"Do or Do not. There is no try."

“The Real Tax Threat To American Businesses”: Big Corporations Don’t Pay Their Fair Share

American businesses face some serious challenges from taxes. But it’s not due to America’s tax rates, as many big business CEOs would have you believe. Our corporate tax problems stem from a corporate tax code with so many perks, credits and loopholes in it that many U.S. multinational corporations pay little to no taxes. This starves our national budget and imperils public education, innovative research and infrastructure, the sort of public investments that help make our businesses and economy competitive. And, maybe even worse, it’s unfair.

I’m an accountant. I know about taxes. I help my clients take advantage of the deductions and incentives to which they are entitled. But because of accounting tricks my clients cannot use, many giant U.S. corporations pay taxes at effective rates far lower than most small businesses and many middle class families. The average U.S. multinational corporation paid just 12.6 percent of its income in taxes in 2010, according to the Government Accountability Office.

Some of the most unfair corporate tax loopholes for America’s competitive position in the world are the offshore tax loopholes. These loopholes alone cost the U.S. Treasury an estimated $90 billion a year. They also create an unfair playing field between domestic businesses like I serve in my practice, and the large multinational firms, whose high priced tax attorneys and lobbyists have devised ways to shift profits earned in the United States to the world’s tax haven countries where those profits are taxed lightly, if at all.

For instance, some software companies take patents on products developed in the U.S. and register them in a foreign tax haven. When a U.S. customer purchases the product, the company sends a large chunk of the purchase price to the tax haven to pay for the use of the patent. Thus the company reduces its effective corporate tax rate – sometimes even below 10 percent.

My clients don’t have this option. Nor would they want it. They are restaurants and dry cleaners, medical practices, small manufacturers and auto repair shops. They work hard and they expect to pay their fair share of taxes. They are the engines of our local economy, just as similar small companies are the engines of local economies across the country. They provide needed goods and services. They provide needed jobs. And they pay needed taxes.

Their taxes help pay for public investment in schools, roads, courts, public transit, public safety, public health – all of the basic infrastructure that enables all businesses to function and thrive. Since they benefit – as we all do – from those tax investments, it’s only fair that they should pay their share.

But their counterparts at large US multinationals don’t have to. And it’s the tax code that lets them. It’s as if the tax code pretends that they are operating in a third world country with no infrastructure to support. That’s ridiculous, of course. I’m good at accounting and bookkeeping, but I sure wouldn’t want a client trying to operate their entire business in a rural part of a third world country.

Our tax code should be fair and should encourage investment in our shared future. When we invest together we start a virtuous cycle of growth. But when people, whether individuals or business owners, think the tax system is rigged in favor of one group or another – say U.S. multinational companies using overseas tax havens – they rightly feel that they are paying more than their fair share. They lose faith in the system.

And when tax revenues are lower than they would be without such loopholes, policymakers look for ways to cut spending. This starts a vicious cycle of ever-shrinking economic activity and ever reducing tax revenue.

Fixing the tax code is the answer, and a good place to start is with the unfair overseas loopholes that undermine our faith in the tax system and rob our communities and the nation of vital investments in the future.

It makes no sense for our tax code to be hurting domestic job creators and undermining the tax base for our schools, roads, police and other vital services and infrastructure.

The tax reform America needs is one that closes many of the unfair loopholes won by big business lobbyists over the last three decades. We need the extra revenue collected to invest in the 21st century economy that will sustain our families, our communities and our businesses.

 

By: Brian Setzler, U. S. News and World Report, January 17, 201

January 22, 2014 Posted by | Big Business, Tax Loopholes | , , , , , , , | 2 Comments

“Treasure Island Trauma”: Living In A World Whose Leaders Seem Determined Not To Learn From Disaster

A couple of years ago, the journalist Nicholas Shaxson published a fascinating, chilling book titled “Treasure Islands,” which explained how international tax havens — which are also, as the author pointed out, “secrecy jurisdictions” where many rules don’t apply — undermine economies around the world. Not only do they bleed revenues from cash-strapped governments and enable corruption; they distort the flow of capital, helping to feed ever-bigger financial crises.

One question Mr. Shaxson didn’t get into much, however, is what happens when a secrecy jurisdiction itself goes bust. That’s the story of Cyprus right now. And whatever the outcome for Cyprus itself (hint: it’s not likely to be happy), the Cyprus mess shows just how unreformed the world banking system remains, almost five years after the global financial crisis began.

So, about Cyprus: You might wonder why anyone cares about a tiny nation with an economy not much bigger than that of metropolitan Scranton, Pa. Cyprus is, however, a member of the euro zone, so events there could trigger contagion (for example, bank runs) in larger nations. And there’s something else: While the Cypriot economy may be tiny, it’s a surprisingly large financial player, with a banking sector four or five times as big as you might expect given the size of its economy.

Why are Cypriot banks so big? Because the country is a tax haven where corporations and wealthy foreigners stash their money. Officially, 37 percent of the deposits in Cypriot banks come from nonresidents; the true number, once you take into account wealthy expatriates and people who are only nominally resident in Cyprus, is surely much higher. Basically, Cyprus is a place where people, especially but not only Russians, hide their wealth from both the taxmen and the regulators. Whatever gloss you put on it, it’s basically about money-laundering.

And the truth is that much of the wealth never moved at all; it just became invisible. On paper, for example, Cyprus became a huge investor in Russia — much bigger than Germany, whose economy is hundreds of times larger. In reality, of course, this was just “roundtripping” by Russians using the island as a tax shelter.

Unfortunately for the Cypriots, enough real money came in to finance some seriously bad investments, as their banks bought Greek debt and lent into a vast real estate bubble. Sooner or later, things were bound to go wrong. And now they have.

Now what? There are some strong similarities between Cyprus now and Iceland (a similar-size economy) a few years back. Like Cyprus now, Iceland had a huge banking sector, swollen by foreign deposits, that was simply too big to bail out. Iceland’s response was essentially to let its banks go bust, wiping out those foreign investors, while protecting domestic depositors — and the results weren’t too bad. Indeed, Iceland, with a far lower unemployment rate than most of Europe, has weathered the crisis surprisingly well.

Unfortunately, Cyprus’s response to its crisis has been a hopeless muddle. In part, this reflects the fact that it no longer has its own currency, which makes it dependent on decision makers in Brussels and Berlin — decision makers who haven’t been willing to let banks openly fail.

But it also reflects Cyprus’s own reluctance to accept the end of its money-laundering business; its leaders are still trying to limit losses to foreign depositors in the vain hope that business as usual can resume, and they were so anxious to protect the big money that they tried to limit foreigners’ losses by expropriating small domestic depositors. As it turned out, however, ordinary Cypriots were outraged, the plan was rejected, and, at this point, nobody knows what will happen.

My guess is that, in the end, Cyprus will adopt something like the Icelandic solution, but unless it ends up being forced off the euro in the next few days — a real possibility — it may first waste a lot of time and money on half-measures, trying to avoid facing up to reality while running up huge debts to wealthier nations. We’ll see.

But step back for a minute and consider the incredible fact that tax havens like Cyprus, the Cayman Islands, and many more are still operating pretty much the same way that they did before the global financial crisis. Everyone has seen the damage that runaway bankers can inflict, yet much of the world’s financial business is still routed through jurisdictions that let bankers sidestep even the mild regulations we’ve put in place. Everyone is crying about budget deficits, yet corporations and the wealthy are still freely using tax havens to avoid paying taxes like the little people.

So don’t cry for Cyprus; cry for all of us, living in a world whose leaders seem determined not to learn from disaster.

 

By: Paul Krugman, Op-Ed Columnist, The New York Times, March 21, 2013

March 25, 2013 Posted by | Global Economy | , , , , , , , , | 1 Comment

   

%d bloggers like this: