Govt. Pays Taxes to Corporations: Why??

By Shlomo Maital

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     Once corporations paid taxes to governments. It made sense. Companies benefit from services and infrastructure, so they should pay taxes, like everyone.

       But then, countries discovered they could play a win-lose game by offering corporations tax breaks (like Ireland’s 12.5% corporation tax) to lure them to come. We win, you (other countries, e.g. U.S.) lose.   Soon many countries were offering such tax breaks. And corporations grabbed every one. Legally. It is almost true that governments now pay taxes to corporations.

       Writing in the Oct. 5 New York Times (“Dealbook”), Russ Sorkin cites a study just released, that found that “73 per cent of Fortune 500 companies” (that is, 365 of them!) maintained “subsidiaries in offshore tax havens”. Apple alone holds $214.9 billion abroad and would owe $65.4 billion in taxes if it brought that money back to the U.S.

       The study shows how companies set up small subsidiaries, small enough to avoid reporting offshore profits; “27 companies reported 16,389 total subsidiaries (!) and 2,836 tax haven subsidiaries to the Federal Reserve – but only a small fraction of those were reported to the Securities Exchange Commission”.

         A furor arose over Donald Trump’s failure to pay income tax. But compared to the legal tax avoidance of companies sending money offshore, it’s a drop in the bucket.

         America could use a big dose of capital investment. But the money that could pay for it is sheltered abroad. How much? 58 Fortune 500 companies alone would owe $212 b. in federal taxes, if they were taxed properly.

         My questions: Who created these loopholes in America’s tax law? And why can’t legislators fix them?   Are Republicans so enamored by wealth that they approve this? Are Democrats so helpless they can’t take on tax reform?

             The Europe Union is trying to collect $14.5 b. in taxes from Apple. Apple CEO Tim Cook calls this effort “total political crap”.  

             The place to start is simply to require transparency. Nobody really knows how much money is sheltered abroad. Start by making companies report offshore holdings. And then – figure out how to make them pay taxes on them, no matter where they are.