Time to Close Corporate Tax Loopholes

Recently, the CEO of Apple testified before Congress about his company’s tax dodging. From 2009-2012, Apple stored almost $74 billion offshore, money virtually untaxed thanks to the use of Irish subsidiaries.

In Ireland, corporations pay taxes where the bulk of their business decisions are made, while the U.S. assesses taxes where a corporation is headquartered. In practice, this means that Apple avoids a significant amount of tax liability through a simple shell game, registering their corporation in Ireland while the locus of decision-making is within the United States.

Apple isn’t the only corporation to take advantage of incredibly lax rules where corporate taxes are concerned. Of the 100 most profitable companies in the U.S., 87 are known to store money in offshore tax havens. The havens are glorified P.O. boxes in countries (the Cayman Islands are a good example) without corporate income taxes, allowing American corporations to create subsidiary companies by simply locating a P.O. Box in the tax haven and reporting all income to that subsidiary. Some corporations even have the gall to report a loss for the year, attempting to qualify for extra tax cuts while the bill is picked up by the rest of us.

The problem with this scenario is that the United States loses out on significant tax revenue that is needed for investment in infrastructure, health care, and education. In addition to calling on Congress to close corporate tax loopholes that pass extra tax liability onto small businesses and working families, MPA believes that the supporters of fair taxation on corporations need to be clear about the reason the revenue is so important.

The F-35 program is an example of Congress finding money to spend on a project that is far from in the best interests of the country. $1.5 trillion dollars could be saved by just eliminating the F-35 plane, which Robert Gates, the Defense Secretary under Presidents Bush and Obama, called, “unnecessary and extravagant.” However, since the F-35 is produced in a multitude of factories in a multitude of states, members of Congress protect this wasteful defense spending under the guise of job creation. America can create better jobs than ones producing superfluous weapons systems.

In the timeline of Congressional action, the best chance to influence corporate tax loopholes and Congressional spending will be in the fall, as the federal budget will be due at roughly the same time that the country reaches the debt limit. In addition, another round of sequestration cuts will automatically take effect. The cumulative effect of these budget decisions will be the temptation to construct a “Grand Bargain” in Congress to achieve bi-partisan support and cut a long-term budget deal. Make no mistake: any “Grand Bargain” will make cuts to programs like Social Security and Medicare, and may not sufficiently protect education and health care programs.

There have already been more than enough cuts to programs people depend on. The amount of revenue proposed by President Obama to be raised in a budget deal is $600 billion, which is a paltry sum compared to the $1.9 trillion currently sitting offshore and avoiding U.S. taxes. It’s time to demand an end to corporate tax loopholes and offshore tax havens to raise the revenue needed to invest in the future.