My main bearded tax expert David Cay Johnston is back with more perfectly legal scams that big business use to get rich at our expense. Here it is in layman's terms:
Imagine how your bank statement would look if, instead of having taxes taken out of your weekly paycheck, Congress let you keep that dough in return for your promise to pay your taxes years or decades from now—and sometimes, never.That’s the extraordinary deal Congress gives many big American companies now sitting on hundreds of billions of dollars of what are, essentially, interest-free loans. Apple and GE owe at least $36 billion in taxes on profits being held tax-free offshore, Microsoft nearly $27 billion and Pfizer $24 billion, according to Citizens for Tax Justice, a nonprofit organization respected for the integrity of its numbers even by groups that dislike its progressive perspective.
'Twas not always thus, Johnston reminds us, and as usual, it's Reagan's fault [emphasis mine]:
The use of offshore tax havens to convert profits into expenses stems from a 1986 change to Section 531 of the tax code. Starting in 1909, Congress imposed a 15 percent penalty on corporate cash-hoarding. That was supposed to encourage companies to reinvest and pay salaries and dividends, rather than weaken the economy by stuffing profits into the corporate equivalent of the proverbial mattress.The 1986 amendment said companies could hold unlimited amounts of cash, provided it was in offshore accounts. Today at least 362 of the Fortune 500 companies have more than 7,800 tax haven subsidiaries, many stuffed with cash, according to a tiny nonprofit research organization, the Institute on Taxation and Economic Policy.Johnston also reminds us of the IRS's double standard, one for all of us Joe Schmoes and another for corporations: "For the vast majority of people with regular W-2 jobs, income taxes are taken out before you get your check. Congress does not trust you, so it demands its cut up front and requires your employer, bank and stockbroker to verify what they paid you."
However, [emphasis mine]:
[I]f you are a multinational, the government takes your word on how much you owe, subject only to the increasingly rare audits by the IRS. Top IRS auditors, paid about $150,000, each find on average $19 million of corporate taxes due each year, according to data the IRS discloses to Syracuse University researchers each month. Even though each auditor finds $126 in taxes owed for each dollar he or she earns in pay (a great return on investment), Congress has been steadily shrinking their ranks for more than two decades. It also hobbles auditors by allowing them to look only at issues the companies have been warned about, a practice similar to food, hospital and pet shop inspectors tipping businesses off that they are coming so they can clean up first.
Let me highlight that: the IRS is the only government agency that makes money -- it enhances our government's fiscal position, making our government less likely to go bankrupt -- and yet Republicans in Congress consistently underfund the IRS as it tries to enforce the tax laws already on the books.
(So next time Republicans say they won't pass immigration reform because President Obama won't enforce existing laws, you'll know they're hypocrites.)
Perhaps the most perverse thing that happens is this:
Many companies, though, take a much simpler and safer approach when investing their untaxed profits. They buy U.S. Treasuries, those bonds the government sells because it spends more than it collects in taxes. In that way, the federal government pays companies to delay paying their taxes.This is a classic heads-you-win-tails-I-lose economic plan: The government loans money to big companies interest-free, then borrows it back with interest.
Pretty sweet deal, if you can get it!
By David Cay Johnston
September 4, 2014 | Newsweek