Wealthy Corporations with a Trillion Dollars Stashed Offshore Lobby for a 'Holiday' from US Taxes

Monday, October 24, 2011 by iWatchNews.org

by John Aloysius Farrell and Aaron Mehta 

Goaded by battalions of corporate lobbyists, members of Congress are working to give a select group of U.S. multinational firms like Apple, Oracle and Pfizer a lavish tax break on a trillion dollars stashed offshore.

Everyone is smiling in this advert from 'Win America', a coalition of corporate interests who want to 'repatriate' overseas profits -- much of it intentionally hidden from the US tax system in places like the Cayman Islands and other tax havens. Their avowed goal is to generate jobs and investment, but the offshore tax holiday was tried before, in 2004, and the lion’s share of the benefits went not to unemployed workers and their families, but to corporate shareholders and executives. No wonder they're smiling. 

With today’s high unemployment, and soaring costs for college, health care and other family essentials, critics are asking why an elite class of corporations and their shareholders should get a huge tax break on overseas profits.

The proposed tax holiday could cost the Treasury from $40 billion to $80 billion [3] over the next decade, and the high cost of the measure is one reason that its prospects for passage are mixed.

But 73 members of Congress, both Republicans and Democrats, have signed up as co-sponsors. And cash-rich mega corporations are pushing hard for the tax break.

A number of trade groups and corporations that would benefit have joined in a coalition called WIN America [4]. New lobbying disclosure reports show that the group and its member firms have spent millions of dollars, and employed dozens of lobbyists, to press for the tax break, according to an analysis by iWatch News. 

The current rules for tax repatriation, as the process is called, are a thorn for U.S. firms that make money overseas. American companies face a 35 percent corporate income tax. Money earned offshore is taxed only by the country of origin until it is “repatriated” to the U.S., at which time an additional tax is levied to make up any difference and bring the rate to 35 percent.

The 2004 holiday allowed U.S. firms to bring their offshore profits back and pay a rate of only 5.25 percent.

“The repatriation tax break created a competitive disadvantage for domestic businesses that chose not to engage in offshore operations or investments and provided a windfall for multinationals in a few industries without benefiting the U.S. economy as a whole,” said the Democratic staff of the Senate Permanent Subcommittee on Investigations, in its Oct. 11, 2011 report [5], done in response to the new push for another tax holiday.

“I want them to pay their taxes like the rest of us,” said Sen. Carl Levin, the Democrat from Michigan whose committee compiled the report. Michigan’s unemployment remains among the highest in the country. “The rest of us don’t get a tax holiday.”

Benefitting the Few There are 27 million businesses in America, and almost 10,000 have foreign subsidiaries and could qualify for the tax break. Yet only 843 of these firms took advantage of the bargain tax rates set by the 2004 law, the IRS says [6].

Those 843 companies brought around $362 billion home from overseas. More than half the benefits went to only 15 firms. And just five — Pfizer, Merck, Hewlett-Packard, Johnson & Johnson and IBM — retrieved $88 billion, a fourth of the funds returned.

Two sectors profited disproportionately. Drug companies brought home some 29 percent of the repatriated funds; the computer and electronics industry another 19 percent, according to an IRS analysis.

The holiday also rewarded those who were using offshore funds to dodge taxes in the first place. Among the firms most likely to participate in the tax holiday were many that regularly stash their earnings in tax havens. The countries of incorporation with the largest percentage of repatriated funds under the 2004 law included the Netherlands, Switzerland, Bermuda, Ireland, Luxembourg and the Cayman Islands.

In many cases, the money was moved through shell companies, often just mailbox drops, that had no employees or physical assets.

Intel and Coca-Cola, the Senate inquiry determined, used shell companies in the Cayman Islands. Proctor & Gamble used a holding company in Bermuda that had no physical office and no full-time employees. Eli Lilly used Switzerland and the British Virgin Islands. Oracle employed an Irish subsidiary.

Many firms used the “repatriated” money, as it is known, to launch stock buy-back efforts, boosting the value of their shares and — via stock awards to senior managers — hiking executive compensation rather than investing the money in new jobs or research and development, as the bill intended.

Because of the law’s lax safeguards, firms that took advantage of the tax break in 2004 “did not … significantly increase employment or research and development,” Dhammika Dharmapala [7], an expert on tax policy, and one of the authors of a National Bureau of Economic Research (NBER) study [8] of the 2004 holiday, told iWatch News .

Then, as now, the bill’s proponents insisted that they had included safeguards to guarantee that the benefits of the tax break would be used to create jobs and spur investment. But in the 2004 law, these measures were easily dodged.

The language of the law expressly forbade companies from using repatriated funds for stock buybacks or executive compensation. But that did nothing to keep companies from doing so. “Estimates imply that firms returned almost all of the repatriated cash to shareholders — a use that was explicitly not permitted,” the NBER study concluded. The NBER is a nonpartisan organization whose ranks of current and former members are salted with Nobel Prize-winning economists.

The NBER study [8] of all companies that cashed in on the holiday calculated that 60 percent to 92 percent of the money repatriated was used for payouts to shareholders.

“Stock repurchases and executive compensation climbed at the largest repatriating corporations, while hiring stagnated or declined,” according to the Senate committee’s study of 15 leading firms that profited from the tax break.

Drug giant Pfizer, which repatriated the single largest chunk of cash — $37 billion — announced that it was laying off thousands of employees in 2005. Yet from 2004 through 2006, according to the Senate inquiry, Pfizer repurchased over $17 billion of its stock, and awarded its five most highly compensated executives with shares worth $30 million.

“If you’re looking for straight up, direct job creation, the evidence isn’t there,” says Michael Mundaca, until this summer the Assistant Treasury Secretary for Tax Policy in the Obama administration.

Lobbying Hard The financial return for lobbying in the 2004 debate was indicative of why firms have once more embraced the goal. According to one University of Kansas study [9], companies reaped $220 in tax benefits for every $1 spent on lobbying — a 22,000% return.

WIN spent the first 9 months of this year actively lobbying for a repatriation bill in Congress. It spent $380,000 to hire two firms (Cauthen Forbes & Williams and Capitol Counsel LLC) and target lawmakers with a total of eight lobbyists. Among the lobbyists hired directly by WIN are several people with strong ties to Congress:

• Jim McCrery, a former Congressman who represented Louisiana’s 4 ^th district until 2009.

• Drew Goesl, who served as chief of staff for Rep. Mike Ross and communications director for Sen. Blanche Lincoln; Ross is a co-sponsor of the House bill.

• Tucker Shumack, a former legislative assistant for Sen. John Isakson, a co-sponsor of the Senate bill.

• Dena Battle, a former legislative director for Rep. Dave Camp, who as head of the powerful Ways and Means Committee has sway over tax policy in the U.S.

• Jeff Forbes, a former staff director on the Senate Finance Committee.

• Libby Greer, a former chief of staff for former Rep. Allen Boyd.

All told, 58 organizations and companies listed “repatriation” on their disclosure forms as an issue they were lobbying on through the first nine months of 2011. While these companies spent at least $71.2 million on lobbying during this period, due to the way lobbying is disclosed it is impossible to tell exactly how much was spent on what issue. If these groups spent a conservative estimate of 10 percent of their money on this issue, that would still be over $7 million. And it is likely to be more — companies and organizations could be lobbying on the issue but simply list it as “taxes” or “funds”.

WIN affiliated companies such as Pfizer ($7,340,000 overall), Qualcomm ($3,880,000 overall), Microsoft ($3,592,000 overall), Apple ($1,350,000 overall) and Oracle ($1,150,000 overall), among others, spent at least some money to lobby the issue.

The 2004 tax break was advertised and sold as a one-time deal, but the affected firms correctly perceived that after a few years had passed they could demand another round of relief, and they have stockpiled hundreds of billions of dollars overseas in anticipation of the next holiday.

While he doesn’t expect any of the bills to pass, citing the need for Congress to find offsets for the $40 billion to $80 billion it would initially cost, Mundaca sees serious dangers in having the repatriation holiday. “I think a holiday every few years is unsustainable,” he told iWatch News .

“You can’t have an important part of your tax system subject to the whims of the legislative process. I think there needs to be a decision whether this is a good idea or not, for all time, not whether it’s a good idea once every five years.”

New Proposals for Congress There are now several tax holiday proposals, embraced by both Democrats and Republicans. The Foreign Earnings Reinvestment Act [10], for example, is sponsored by Democratic Sen. Kay Hagan of North Carolina and Republican Sen. John McCain of Arizona. It would reduce the tax on repatriated earnings to 5.25 or 8.75 percent, depending on the size of a firm’s payroll.

Under the Hagan-McCain bill, firms that add workers would be rewarded and those that exploit the holiday and then lay off workers would be penalized — a new wrinkle designed to meet the criticism that several big firms which took advantage of the 2004 holiday proceeded to cut, rather than expand, their work force.

Still, the tax holiday’s defenders hail its potential as a new stimulus act.

Economist Douglas Holtz-Eakin, [11] who headed the Congressional Budget Office for two years during the Bush administration, acknowledged in a paper for the U.S. Chamber of Commerce that the 2004 act had poor safeguards, which complicates any calculation of its effects. “There is no official report on how the repatriated earnings were actually spent,” he writes, since the law “did not require companies to trace or segregate their use of repatriated funds.”

But even if the bulk of the money was spent rewarding shareholders, a trickle-down effect should have benefited everyone, Holtz-Eakin argues. Payouts to shareholders “put resources in the hands of other economic actors — firms, households, pension plans, investors, etc. — who continue the chain of real purchases and financial transfers.”

“Thus the ultimate test is not the decisions made by individual firms,” he writes. Though “the various uses of repatriated earnings may each impact the economy differently, it’s safe to say that there is no option that does not result in some degree of stimulus.”

Mundaca says there hasn’t been a deep enough analysis of the secondary impacts of buybacks and stock purchases to rule out the possibility that those helped the economy.
In a paper [12] for the nonpartisan New America Foundation, economist Laura D’Andrea Tyson and two Berkeley associates estimate that 74 percent of the money brought back to the U.S. in a tax holiday would be distributed to shareholders in the form of dividend payments or stock repurchases, and only 26 percent used for hiring and other corporate investments.

But for every dollar returned to a shareholder, Tyson says, from 25 to 40 cents will be used by high-income consumers to go shopping. This boost to the economy, when combined with direct hiring and investment by companies, could ultimately lead to the creation of between 1.3 million and 2.5 million jobs.

“Even if a large proportion of the repatriated cash is distributed to shareholders in the form of dividend payments or stock repurchases, there will be a significant increase in private spending and economic activity,” Tyson says.

And even the cut-rate taxes paid by firms repatriating money should yield enough short-term cash to let Congress finance other measures to stimulate the economy, like the infrastructure bank included in President Obama’s job package, Tyson notes. Democratic Sen. Charles Schumer of New York has reportedly tested Senate sentiment for a deal along those lines.

Tyson is a former chair of the White House Council of Economic Advisers under President Bill Clinton. She also serves on the board of directors of Kodak, a member of the WIN Coalition. Eric Schmidt, the executive chairman of Google, serves as chairman of the New America Foundation board, for whom Tyson and her colleagues did the study.

The tax break proposals are predominantly sponsored by Republicans, but three Democratic Senators and 10 Democrats in the House have signed on as co-sponsors of the two main bills. Among those Democrats who are supporting the bill are representatives from districts with high-tech and software industries, in states like Utah and Colorado. Reps. Zoe Lofgren and Anna Eshoo, whose districts encompass California’s Silicon Valley, and California Sen. Barbara Boxer, for example, support the bill.

“The Great American Jobs Act Caper” In the world of tax economists, the 2004 tax holiday is notorious as “The Great American Jobs Act Caper,” as tax expert Charles Kingson christened it, in a 2005 edition of the Tax Law Review .

It “rewards those who have beaten the tax system,” Kingson wrote [13]. The safeguards to guarantee job creation were just “political cover.”

“The Act is a caper, but not a funny one,” Kingson wrote. “Policy is a contest among taxpayers, and what Intel or GE or Pfizer does not pay, other people or their children will.”

Many companies that make products in America and sell them overseas could suffer in another tax holiday, according to the Congressional Research Service, if a tide of money stashed overseas in foreign currencies was converted to dollars. It could drive up the price of the dollar and “U.S. net exports may decline,” the CRS warned.

Repatriation is so tailored for a relative few, and more likely to help shareholders rather than workers seeking jobs, that four U.S. corporate chieftains urged the House Ways and Means committee to abandon the idea at a hearing [14] in May. The American tax system is in dire need of a major overhaul, said the chief financial officers of the United Technology Corp., the Kimberly-Clark Corp., Zimmer Holdings Inc. and Caterpillar Inc., but tax breaks like the repatriation holiday could give tax reform a bad name. Or, as a Goldman Sachs advisory said last month, “passage of a standalone repatriation provision could reduce momentum behind broader reform.”

The proposals for a new tax holiday have been greeted with skepticism, as well, by some conservative economists who otherwise deplore high taxes.

The Heritage Foundation, in an Oct. 3, 2011, report [15], concluded that “this sequel to a similar 2004 holiday would, like its predecessor, have a minuscule effect on domestic investment and thus have a minuscule effect on the U.S. economy and job creation.”

American companies are already awash in cash, noted Heritage scholars J.D. Foster and Curtis S. Dubay. And “for those rare instances in which outside financing is needed, interest rates remain at historic lows.”

After a thorough review of the academic literature, “I have not seen an article that says this does create jobs,” Dubay to iWatch News. 

The Heritage report sparked a retort [16] from Grover Norquist at Americans for Tax Reform, another conservative group, who praised the stock buybacks and higher dividends that followed the 2004 law and asked: “What’s wrong with increasing shareholder value?”

But even Norquist conceded that “Foster and Dubay are probably correct.” American firms “already have trillions of dollars in cash sitting on their balance sheets, ready to be deployed at no additional tax cost. Even companies that don’t have this liquidity could borrow at rates approaching 0 percent after inflation,” he said. “It’s unlikely that repatriation will be just what companies have been waiting for on the margin to build that next factory or invest in that new technology. They can today, and they are not.”

Rich corporations with money offshore want a tax holiday; Sen. Carl Levin says, 'I want them to pay their taxes like the rest of us'

Job Destroyers Don't Deserve a Tax Holiday

Monday, October 10, 2011 by OtherWords
When thinks tanks from the left and the right agree on something, Congress should pay attention.
by Sarah Anderson and Chuck Collins

 

A coalition of big businesses is waging a campaign for a massive tax holiday on corporate profits stashed overseas. Its lobbyists claim that this windfall would create millions of jobs. If our lawmakers buy that, they've got very short memories.

Just seven years ago, big American corporations made the exact same promises. And Congress gave them a tax holiday that allowed 843 companies to reduce their tax rate from 35 percent to 5.25 percent on $312 billion in offshore profits. 

What did Americans get in return? This week, our organization, the progressive Institute for Policy Studies, released a report showing that 58 companies that received 70 percent of the tax windfalls didn't boost employment. In fact, they actually destroyed a total of nearly 600,000 jobs.

Almost simultaneously, the conservative Heritage Foundation released a paper with the same conclusion: Tax holidays don't create jobs. When thinks tanks from the left and the right agree on something, Congress should pay attention.

But we're up against powerful forces.

A coalition called Working to Invest Now in America, which goes by the slick name WIN America, has deployed more than 160 lobbyists and spent at least $50 million to win a tax holiday on more than $1 trillion in offshore funds that might get repatriated if Uncle Sam grants this tax break. Lawmakers in both the House and the Senate have introduced bills that would do just that.

The Senate version, unveiled in early October, would give the deepest tax discounts to firms that create jobs, but that requirement only applies for one year. We need jobs that last, not positions that could vanish after the nation's supposed job creators get their huge tax windfall.
Some executives argue that without the tax holiday, these global firms would keep their cash offshore permanently, and it's better for Uncle Sam to get something rather than nothing. Nevertheless, offering such drastic tax discounts sets a dangerous precedent.

Back in 2004, the corporate lobbyists argued that the holiday would be a "one-time" deal. But after they won that round, they turned around and began amassing their offshore stashes once again. They must have counted on getting more tax holidays.

A tax holiday for job destroyers isn't only a waste of taxpayer money at a time of urgent needs. It hurts small businesses and other firms that operate only domestically. What sense does it make to give global companies deep discounts on their IRS obligations while these small, yet strong, engines of job creation face standard tax rates?

There are many things that we can do to strengthen the U.S. economy and spur job growth. But providing subsidies to companies whose business model is based on minimizing labor costs, sending profits offshore, and dodging taxes isn't a good strategy. These companies may compensate their CEOs lavishly and deliver value to shareholders, but they aren't in the business of creating jobs.

The WIN America campaign leader that stands to gain the most is Pfizer. The pharmaceutical giant was the leading beneficiary of the 2004 tax holiday when it toted $40 billion in foreign funds back to the United States.

And what did Americans get for Pfizer's subsidy? Instead of creating jobs, the firm proceeded to scrap more than 58,000 jobs in the years since that holiday.

Today, Pfizer is holding more than $48 billion in profits offshore. Will Congress be fooled again?

No Tax Holiday for Corporate Job Destroyers (2 articles)

Tuesday, October 4, 2011 by CommonDreams.org
Uncle Sam Should Support Built-to-Last Companies, Not Built-to-Loot Enterprises
by Chuck Collins

 

A powerful coalition of U.S.-based global companies is lobbying hard for a "tax holiday" on offshore profits.

Companies like Google, Apple, Pfizer, and General Electric have parked huge amounts of profits — a stash totaling more than $1.4 trillion —in offshore tax havens. They've stowed those funds abroad primarily to avoid having to pay federal taxes on that income.

But now they want to bring their treasure to the United States, albeit at a steep discount on what they owe the IRS. Instead of paying the statutory corporate income tax rate of 35 percent — or even the "effective rate," which for most global companies, is closer to 11 percent — they're urging Congress to let them do this at a tax rate that's a whisker over 5 percent.

They tell Congress they need a "tax holiday" to free up badly needed capital to invest in right here — creating jobs at a time when the U.S. economy is sputtering.

They've formed a lobby front called the WIN America coalition to make their case, spending over $50 million and hiring over 42 lobbyists that previously worked as staffers on select Congressional tax writing committees. Most GOP members would support any tax cut, even in their sleep, so WIN America has focused its lobbying firepower on Democratic members.

The coalition's corporate lobbyists argue this would be a win-win stimulus for the economy and a low-cost way to growth and jobs that both Republicans and Democrats could support.

The problem with these WIN America promises is this: Their pants are on fire. Here's how we know that: They waged the same campaign in 2004 with the same promises that they would create jobs, got their way, and created few jobs. Worse, some companies destroyed tens of thousands of jobs.

According to a new report that I co-authored, America Loses: Corporations That Tax Holidays Slash Jobs, most of the companies that claimed a tax holiday in 2004 dramatically reduced their national and global workforces.

In fact, 58 of the large corporations that took advantage of the 2004 tax holiday shed almost 600,000 workers in subsequent years. This downsizing was not a result of the economic meltdown as many of these companies prospered. Today, these 58 companies maintain combined cash reserves of more than $450 billion. There's nothing holding them back from investing in America.

These 58 giant corporations accounted for nearly 70 percent of the total repatriated funds and collectively saved an estimated $64 billion from what they otherwise would have owed in taxes. The 10 biggest "layoff leaders" were Citigroup, Hewlett-Packard, Bank of America, Pfizer, Merck, Verizon, Ford, Caterpillar, Dow Chemical, and DuPont. Unfortunately, a segment of corporate America embraces a "built to loot" business model. 

The corporate flaks will complain that these job loss numbers are exaggerated. We believe they are low, but we won't know for sure until companies that benefit from U.S. tax breaks and subsidies are required to report, in plain language, the number of U.S. employees they have.

Congress shouldn't be fooled again. Limited incentives should go to activities that will create jobs, not another tax holiday for off shore tax dodgers. These companies are not in the business of creating jobs. They are in the business of shifting as much wealth to their top managers and shareholders as possible.

There are other businesses out there — small businesses and domestic companies rooted in local communities that should be the objects of our encouragement and support.

Management guru Jim Collins (no relation) has written about the characteristics of "built to last" companies, businesses that are not "take the money and run" oriented, but are dynamic, growing, and capable of adapting to changing market environments. Built-to-last companies don't play fast and loose with their stakeholders — namely, their employees, shareholders, the communities where they operate, and Mother Earth.

Unfortunately, a segment of corporate America embraces a "built to loot" business model. They shift every possible expense off their balance sheet and squeeze their stakeholders, with the exception of top management and shareholders. They outsource and offshore jobs and engage in accounting gymnastics to game their tax bills to nothing. They mooch from the common treasury, but don't contribute.

Lawmakers should block this fiscally irresponsible and entirely undeserved tax break.

++++

Tuesday, October 4, 2011 by Reuters
Citi, BofA Cut Workers After US Tax Holiday-Report
Report singles out 10 companies for cutting jobs

 

 

Ten major U.S. corporations, including big banks Citigroup Inc and Bank of America Corp, laid off workers after enjoying a tax holiday in 2004-2005 that had been billed as a form of economic stimulus, said a report released on Tuesday.

With large multinational companies today pressing Congress for another tax holiday, the Institute for Policy Studies reported that the last one did not fulfill its rosy promises for hundreds of thousands of U.S. workers.

Fifty-eight corporations that accounted for 70 percent of overseas profits repatriated under the 2004-2005 tax break collectively saved $64 billion in taxes, then cut 600,000 jobs through layoffs, the report said.

It is the latest in a series of warring studies on whether U.S. multinationals should be allowed, for the second time, to bring home hundreds of billions of dollars in overseas profits at a bargain-basement tax rate.

Large companies are lobbying again for such a tax break, which would let them repatriate much if not all of an estimated $1.5 trillion in overseas profits for well below the full 35-percent corporate income tax rate.

Legislation in the Republican-controlled U.S. House of Representatives would let them repatriate those profits at 5.25 percent, the same tax rate given to them under a similar tax holiday during the Bush administration.

Just as they are doing now, companies six years ago said that the repatriation tax break would boost jobs and the economy. But the institute said this did not happen, as earlier academic studies have also found.

"History shows that many 'tax holiday' companies use repatriated profits to reward executives and other shareholders, then lay off workers. Corporate tax holidays have resulted in precious few U.S. jobs," said Chuck Collins, co-author of the report from the left-leaning institute.

Besides Citi and Bank of America, the report focuses on technology group Hewlett-Packard, drugmakers Pfizer Inc and Merck & Co Inc, and manufacturers Ford Motor Co and Caterpillar Inc.

Telecom giant Verizon Communications Inc and chemical makers Dow Chemical Co, and DuPont are also singled out as corporations that "benefited the most financially from the tax holiday and slashed the most jobs."

The U.S. Senate Permanent Subcommittee on Investigations is looking into the results of the 2004-2005 tax holiday as well. A report from the panel is expected within a few weeks, its chairman, Democrat Carl Levin, told Reuters last month.

In 2004-2005, 843 corporations brought home $362 billion in overseas income at a 5.25-percent tax rate. Analysts said that experience encouraged companies to park more income overseas, allowing them to postpone indefinitely paying any U.S. income tax on it, as long as the money stays abroad.

With the economy struggling and new government stimulus hard to come by, a well-financed corporate lobbying campaign -- organized under the WIN America coalition -- is arguing that another tax holiday would boost the economy.

As reported by Reuters in August, the coalition has hired dozens of former congressional tax-writing committee staffers.

The New Democrat Network, a centrist group, issued a report in August saying an overseas tax repatriation holiday would bring new net revenue into the U.S. Treasury.

At a time of soaring government deficits, the Joint Committee on Taxation, a nonpartisan congressional research arm, has estimated that a tax holiday, like the one proposed in the House and favored by WIN America, would eventually cost taxpayers about $78.7 billion over the next decade.

About That Payroll Tax Cut...

Talk about a Ponzi Scheme!

by GWENDOLYN MINK

 

 

Is President Obama trying to kill Social Security without explicitly saying so?

He put Social Security “on the table” for consideration by his Deficit Commission — even though Social Security has not contributed to creating or sustaining the deficit/debt in the first place.  He kept Social Security on the table when he made a deal to delegate deficit reduction authority over entitlements to an undemocratic Super Committee.  Now, in a speech reportedly about jobs, he proposed to extend and increase the ill-considered FICA tax cut he embraced last December — a tax cut that directly undermines the financial integrity of Social Security.

According to the White House Fact Sheet on “The American Jobs Act”  the FICA tax holiday for workers will be increased to a 50% reduction, lowering it to 3.1%.  Under the 2010 tax deal, the payroll tax for workers was reduced from 6.2% to 4.2%.  Inaddition to expanding the tax cut for workers, the President proposes to extend the FICA tax holiday to employers by cutting in half the employer’s share of the payroll tax through the first $5 million in payroll.

Big questions about the wisdom, efficacy, and implications of a tax-based jobs strategy need to be debated.  Even bigger questions about the consequences of the payroll tax holiday in particular need to be answered.  These questions are not just about the relationship between payroll tax cuts and job growth.  They are about the future of Social Security.

The FICA/payroll tax goes into the Social Security Trust Fund.  This is a dedicated fund currently worth $2.6 trillion, which has been built up over time through employee and employer contributions, along with accrued interest.  Current and future Social Security beneficiaries receive benefits from this fund.  No general revenues are involved, except for administrative and clerical costs.

Under the payroll tax cut initiated in the 2010 lame duck tax deal, the revenue loss to the Trust Fund from the payroll tax holiday is made up through compensatory payments into the Trust Fund from general revenues. The President proposes to continue this scheme — deepening a relationship between Social Security and general revenues (read deficit) that did not exist until the December 2010 tax deal.  This will make Social Security increasingly vulnerable to demands for “reform.”

In the worst case, Congress could choose to enact the payroll tax cut without actually appropriating revenue compensation for the Trust Fund.  This would mean that the payroll tax cut directly depletes the Trust Fund, creating financial/actuarial problems far sooner than the currently anticipated shortfall date of 2036.

But even if the Trust Fund receives full revenue compensation — for both employer and employee contributions — Social Security will be jeopardized.  That’s because the resources in the Trust Fund will be increasingly comingled with general revenue funds — and, hence, increasingly connected to the deficit.

If the government can’t  pay back Social Security money it has borrowed to pay for other things (through IOUs, bonds, etc), it certainly won’t be shy about cutting Social Security to pay itself back for funds it shared with Social Security to offset revenue losses from the payroll tax holiday.

Also worth worrying about here is contagious political cowardice about “raising taxes.”  The payroll tax holiday is framed as just that — a holiday, ie, a short-lived break. But as we know from other tax cuts with built-in expiration dates, the planned end of a tax cut quickly becomes a “tax increase” in popular parlance.  There hasn’t been much resolve to allow the years-long tax holiday for the rich to end.  When the time comes, will there be greater resolve to allow an end to the 2-year tax holiday for workers and 1-year tax holiday for employers?  Even when billed as a “middle class tax increase” and a “job-killing tax on business”?

Once the payroll tax basis of Social Security financing has been corrupted the future of Social Security will no longer be in doubt.  It won’t have one.

Corporate Tax Holiday in Debt Ceiling Deal

Friday, July 22, 2011 by Rolling Stone
Where's the Uproar?
by Matt Taibbi
 

Have been meaning to write about this, but I’m increasingly amazed at the overall lack of an uproar about the possibility of the government approving another corporate tax repatriation holiday.

I’ve been in and out of DC a few times in recent weeks and one thing I keep hearing is that there is a growing, and real, possibility that a second “one-time tax holiday” will be approved for corporations as part of whatever sordid deal emerges from the debt-ceiling negotiations.

I passed it off as a bad joke when I first saw news of this a few weeks ago, when it was reported that Wall Street whipping boy Chuck Schumer was seriously considering the idea. Then I read later on that other Senators were jumping on the bandwagon, including North Carolina’s Kay Hagan.

This is what Hagan’s spokesperson said:

Senator Hagan is looking closely at any creative, short-term measures that can get bipartisan support and put people back to work. One such potential initiative is a well-crafted and temporary change to the tax code that encourages American companies to bring money home and put it towards capital, investment, and–most importantly–American jobs.

For those who don’t know about it, tax repatriation is one of the all-time long cons and also one of the most supremely evil achievements of the Washington lobbying community, which has perhaps told more shameless lies about this one topic than about any other in modern history – which is saying a lot, considering the many absurd things that are said and done by lobbyists in our nation’s capital.

Here’s how it works: the tax laws say that companies can avoid paying taxes as long as they keep their profits overseas. Whenever that money comes back to the U.S., the companies have to pay taxes on it.

Think of it as a gigantic global IRA. Companies that put their profits in the offshore IRA can leave them there indefinitely with no tax consequence. Then, when they cash out, they pay the tax.

Only there’s a catch. In 2004, the corporate lobby got together and major employers like Cisco and Apple and GE begged congress to give them a “one-time” tax holiday, arguing that they would use the savings to create jobs. Congress, shamefully, relented, and a tax holiday was declared. Now companies paid about 5 percent in taxes, instead of 35-40 percent.

Money streamed back into America. But the companies did not use the savings to create jobs. Instead, they mostly just turned it into executive bonuses and ate the extra cash. Some of those companies promising waves of new hires have already committed to massive layoffs.

It was bad enough when lobbyists managed to pull this trick off once, in 2004. But in one of the worst-kept secrets in Washington, companies immediately started to systematically “offshore” their profits right after the 2004 holiday with the expectation that somewhere down the road, and probably sooner rather than later, they would get another holiday.

Companies used dozens of fiendish methods to keep profits overseas, including such scams as “transfer pricing,” a technique in which profits are shifted to overseas subsidiaries. A typical example might involve a pharmaceutical company that licenses the rights or the patent to one of its more successful drugs to a foreign affiliate, which in turn manufactures the product and sells it back to the U.S. branch, thereby shifting the profits overseas.

Companies have been doing this for years, to incredible effect. Bloomberg’s Jesse Drucker estimated that Google all by itself has saved $3.1 billion in taxes in the past three years by shifting its profits overseas. Add that to the already rampant system of loopholes and what you have is a completely broken corporate tax system.

And the whole thing is predicated on that dirty little secret – the notion, long known to all would-be major corporate taxpayers, that there would come a day when there would be another tax holiday.

That time, they hope, is now. According to Drucker, lobbyists met with President Obama last December to ask for another holiday. And now the drumbeats are rolling on the Hill for a new holiday to be included in the debt-ceiling deal.

Senator Carl Levin of Michigan, the same Senator who produced the damning report of corruption on Wall Street, has been trying to fight the problem, introducing a measure that would prevent companies from accessing offshored money through correspondent accounts and branches of offshore banks.

Levin’s Permanent Subcommittee on Investigations has also been investigating how companies might use the cash they save from a tax holiday, surveying companies like DuPont, presumably to find out just how many of these firms really intend to create new jobs with their tax savings.

I’m shocked there isn’t more of an uproar about this. Could you imagine what the Tea Party would be saying right now if there was a law on the books that allowed immigrants to indefinitely avoid taxes on income sent back to family members in the old country, in Mexico and Venezuela and India?

Imagine the uproar if Barack Obama, in the middle of this historic revenue crunch and "We're so broke the world is going to end tomorrow!" debt-ceiling hystgeria, decided to declare a second “one-time tax holiday” for, say, unwed single mothers, or recipients of public assistance? Middle America would be running through the streets, firing shotguns out its truck window, waving chainsaws in mall lobbies, etc.

As it is, leading members of the Senate are seriously considering giving the most profitable companies in the world a total tax holiday as a reward for their last seven years of systematic tax avoidance.  Hundreds of billions of potential tax dollars would disappear from the Treasury. And there isn’t a peep from anyone, anywhere, on this issue.

We’re seriously talking about defaulting on our debt, and cutting Medicare and Social Security, so that Google can keep paying its current 2.4 percent effective tax rate and GE, a company that received a $140 billion bailout en route to worldwide 2010 profits of $14 billion, can not only keep paying no taxes at all, but receive a $3.2 billion tax credit from the federal government. And nobody appears to give a shit. What the hell is wrong with people? Have we all lost our minds?

Sitting Atop Trillions: What Would Corporations Do with Another Tax Break?

(Come on! You're still not pissed off to do anything about all this? What's it going to take for Americans to say they've had enough? It's acceptable for you to be really mad at this point. But it's like watching someone commit suicide by holding their breath.--jef)

+++++

Monday, July 18, 2011 by Policy Shop Blog

by Joseph Dwyer 

 

Conservatives routinely declare that businesses can’t hire anyone because tax burdens are too high (or "uncertain"—the bête noir of the day) and the way to create jobs is to give business more money. Among other things, corporations have launched a new campaign in Washington for a tax repatriation holiday that would allow businesses to bring home as much as $1 trillion in offshore profits at a very low-tax rate, cash they say could be used to create jobs and boost the economy.

But business already has plenty of cash, and if you look at what corporate America is actually doing with this money, it’s not pretty.

In 2010, businesses in the U.S. were sitting on $2 trillion in cash (a record high percentage of assets) and when we look at the global picture we see that the top 1,000 non-financial companies in the world are still sitting on more than $3.4 trillion in cash. In case you were wondering what happens with that cash, cash does not create jobs—investments do and investments don't happen without consumer demand. Thus, giving business more money leads to bigger numbers in checking accounts, not jobs.

Maybe things have changed in 2011? As the economy inches back to health, how are these companies deciding to spend all this pent up cash? The Federal Flow of Funds reports that the ratio of nonfinancial corporate cash assets to total assets has actually continued to grow through the second quarter of 2011. The biggest growth is in checkable deposits and currency which has risen 51% since the second quarter of 2010.  So not only are businesses refusing to hire workers, they’re buying currency in a bet against America in the hope that the dollar will fall.

But aren’t businesses doing something productive with that cash? Well, yes. Not only is corporate America using cash to fill space in bank boxes and stuff speculative mattresses overseas, they have decided to use some of it to pad the salaries of their CEOs. In 2010, the S&P 500 companies paid their CEOs an average of $11.4 million—an increase in CEO total compensation by 23%! This collective raise could have hired nearly 32,000 median earning workers instead (or 63 workers per company).

Using the public purse to give even more tax break cash to businesses is exactly the wrong move.  This country needs investments such as that called for in Conyers’ jobs bill, not cash hoarding, asset speculation, and CEO raises. The best investment the public purse can make right now is jobs.

iHate Tax Dodgers Like Apple Computer

Wednesday, June 1, 2011 by CommonDreams.org

by Chuck Collins

 

I’m an Apple fan. I’m writing on my third Mac laptop in a decade. I’ve purchased over $100,000 of Apple products on behalf of a company I’ve worked for over the same period. Plus all those iTunes gift cards for my teenage daughter.

So I was disappointed to learn that Apple is a tax dodger.

Sure, Apple pays some U.S. corporate income taxes. It looks downright patriotic next to master tax dodgers like General Electric and Boeing that have paid zero U.S. taxes for years. But Apple pays far less than it should.

Here's how: Apple shifts patents and intellectual property, which are among their biggest assets, to subsidiaries in other countries that are low and no-tax havens. These include Ireland and the Netherlands, which have especially favorable tax rates on royalties from intellectual property.

When Apple sells an iPad or a MacBook, it allocates a portion of the profits to the offshore subsidiary that owns the patent. This tax dodge is sometimes referred to as the “Irish Two Step” or the “Dutch Sandwich.” But for Apple, we should call it the “Offshore Tax Haven Shuffle.”

Last year, Apple claimed that just 13.9 percent of its profits came from U.S. operations. This is a fantastic fib. Consider all those Americans walking around with iPhones, iPods, iPads, and MacBooks. Think of all those folks buying music on iTunes, sending a buck to Apple for each song. Think of customers lined up at those glitzy Apple stores, like the three-story iPlex down the street from me in Boston.

How is it possible that less than 14 percent of this company's profits come from the United States? Is it because Europeans and the expanding middle classes of India and China are snatching up Apple products by the boatload?

Nope. That low percentage is an accounting fiction that goes to the heart of the tax dodge. Apple methodically shifts its U.S. profits off shore.

Another clue that Apple is ethically rotten is that they are spearheading a national coalition to lobby Congress for a “tax holiday” for offshore profits.

Apple has teamed up with other technology companies like Google, Oracle, Cisco, Microsoft and Adobe, drug giant Pfizer, and utility leaders including Duke Energy to form “WinAmerica,” a slickly messaged campaign to press Congress for an $80 billion tax cut.

U.S. firms have stashed over $1.2 trillion in profits offshore. They want Congress to allow them to “repatriate” these profits at a 5 percent tax rate rather than the 35 percent rate that's legally due when foreign earnings are brought back stateside. If Congress approves this “tax holiday,” Apple alone will dodge an estimated $4 billion in taxes.

Given the budget cuts our communities are facing, it seems reckless for Congress to even consider another tax giveaway to companies playing offshore games. It’s unfair to individual taxpayers and small businesses that have to pick up the slack for tax shufflers like Apple.

In 2004, Congress passed a similar tax holiday — with Apple dodging $255 million at the time. These tax dodgers argue they will create jobs if they’re allowed to bring their profits home lightly taxed. But independent studies show that the 2004 tax holiday did little to create jobs. In fact, profits mostly went to boost stock prices and CEO pay, and enable companies to buy back stock.

Apple should disclose more information to its shareholders, customers and the public. At a time of huge public service cuts and fiscal austerity, why should we the taxpayers give Apple a $4 billion tax break?

Congress should reject the corporate tax holiday for the obvious reason that it encourages bad behavior. If these global companies know that every six years Congress will bail them out with a tax holiday, they’ll continue their off shore games.

Apple may be cool, but until it stops gaming the system and pays its fair share, the company is just another lowly tax dodger.

Billionaires Should Pay No Taxes At All!

by James and Jean Anton
www.endendlesswars.org
Sunday, 19 December 2010

When Obama said America was being “held hostage” by the Republicans, that he had no choice but to compromise, he lied.

He could have pushed the Public Option (sorry to bring this up Mr. President. We know how much it upsets you when we “fucking retards” bring it up). He could have extended unemployment insurance. He could have fought unemployment by Just Saying "No" to outsourcing. He could have proposed a jobs program like FDR did in the form of public works, and improved the infrastructure to boot. He could have attacked the decade-old billionaire and millionaire tax empire by proposing to raise their taxes to help pay off the deficit they created. He could have done some of the above using reconciliation, or he could have shown some real leadership.

He could have been the transformational leader that we thought we elected.

Of course, he didn’t. And of course, he wasn’t.

Instead Obama chose to act as if the Republicans were in charge, which they were not, claiming they were holding a gun to his head, which they weren’t - that he was being held hostage, which he was not.

He “compromised.”

He invited the Republican leadership to the White House, and offered to extend the Bush-era tax cuts for two more years. These cuts originally were a “temporary” Bush-era ploy to “help the economy.” They did nothing of the sort. Instead they handed tax-free windfall billions to the most privileged people in America. The cuts cost 544 billion dollars, and resulted in an economic crisis that began in 2008 and continues today.

In addition, he sweetened the “deal” by proposing a Social Security “tax holiday“ (which will deprive the Social Security Trust Fund of 112 billion dollars), and an extension of the Estate Tax windfall that will benefit three-tenths of 1 percent of Americans (and cost Americans another 68 billion dollars over the next 10 years.)
There would be many other tax breaks for energy interests and select businesses as well.

Total cost for his proposal: More than 860 billion dollars. His “compromise” will cost more than the Bush/Cheney tax scam. It is almost as much as the total cost of the wars in Iran and Afghanistan since 2001. It is more than twice the cost of Medicare.

He did not dare run these audacious ideas by the Democratic rank and file. Instead he invited the ultra-conservative Republican leadership to the White House, and made a deal.

There would be no national debate.

There would be no debate at all.

Obama went over to the Republican side, drew a line in the sand, and thumbed his nose at the rest of us.

He declared that Progressives and Liberals shouldn’t act like “sanctimonious purists.” That they should put the interests of America ahead of their own interests. In other words, he accused his own constituency of not caring as much about the welfare of America as his plutocrat constituents do.

Republicans were surprised and delighted. (Some pretended to believe they could have gotten even more... but the reality is that most Republicans felt like they had just taken Ecstasy). Newspapers like the Washington Post hailed the “compromise” as "the most significant bipartisan vote since President Obama took office.” He was congratulated by Senate minority leader, Republican Mitch McConnell, who consistently receives a 100% score from the ultraconservative American Conservative Union.

Newt Gingrich approved and applauded. Need we say more?

You don’t have to be an economist or a think-tank devotee to see why they were so happy.

Obama made fools of the American people.

The plutocrats know that in 2012, when Obama runs for reelection, America will still be held hostage. This is because in regular hostage deals, the criminals give up the hostages before they receive the pay off.

Obama never freed the hostages.

Plutocrats are giddy because they know that Obama served them once, and that he will serve them again. His willingness to “compromise” guarantees that the tax empire give-away will soon be made permanent.

They are orgiastic because they know that Obama has no real intention to rescind the Social Security tax “holiday.” He practically said so. Not in 2012, not ever.

As long as the Social Security trust fund is there to prop up the economy, Obama will siphon it off. Money will flow from the nest eggs of the working class into the pockets the ruling class.

And what did Obama get for regular Americans with his “compromise”?

Those who pay into Social Security get a little extra pocket money from Obama’s “tax holiday.” Obama hopes that we spend every dime of it, to stimulate the economy. If we put it in the bank, the “tax holiday” will not stimulate anything.

People who are dependent upon Social Security get nothing.

Obama will show how serious he is about deficit reduction by freezing Social-Security payments for eternity. Not only will the trust fund be siphoned off, it will be steadily diminished by inflation.

Employees who are exempt from paying Social Security (who have exempt state-run or other pension plans) also get nothing. No extra cash. Nada.

Low-income workers may actually see reductions in their paychecks. The way the law is written, approximately 50 million taxpayers (approximately one out of three) who make less than $20,000 will see an increase in taxes.

The unemployed get a short-lived extension of benefits. But Federal Reserve Chairman Ben Bernanke predicts that it will take four or five more years before we are back to “normal” unemployment levels. Do you think Obama will have the guts or the will to ask the hostage takers to pay out unemployment checks for four or five years?

And no one seriously expects the Obama “compromise” to create jobs for anyone.

What will happen when the economy does not improve (for us regular Americans)? What will happen when the Social Security trust fund shrivels away? What will happen when unemployment benefits run out again? And again... ?

We are not supposed to worry about that for now.

One can only speculate.

Maybe Obama will go to the plutocrats again and take their advice. Maybe he’ll draw another line in the sand and dare us “fucking retards” to cross it.

Maybe he’ll declare that BILLIONAIRES SHOULD PAY NO TAXES AT ALL.

And give us regular Americans a Medicare Tax Holiday!