DC Johnston: How U.S. companies get rich off taxes

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!

Corporate Deadbeats: How Companies Get Rich Off Of Taxes

By David Cay Johnston

September 4, 2014 | Newsweek

URL: http://www.newsweek.com/corporate-deadbeats-how-companies-get-rich-taxes-268303

Buffett has skin in the housing game

Don't let anybody say I'm a blind cheerleader for Warren Buffett. (Maybe smarter or more pessimistic types can find a self-serving aim in Buffett's saying high U.S. corporate taxes are "myth," but I can't.)

So, let's just say Buffett is wily, hypocritical at times, and usually self-serving, but also often right. And anyway, with Buffett, we always have an easy way to find out what he really thinks: where he invests his money.

Warren Buffett Says "Hormones" Will Fix the Housing Crisis

By Matt Stoller

February 27, 2012 | Naked Capitalism

URL: http://www.nakedcapitalism.com/2012/02/matt-stoller-warren-buffett-says-hormones-will-fix-the-housing-crisis.html

Buffett: High corporate taxes in U.S. a 'myth'

Said the Sage of Omaha in an interview with CNBC: "It's a myth that American corporations are paying 35 percent or anything like it. Corporate taxes are not strangling American competitiveness."

Warren Buffett: High Corporate Taxes Are An American 'Myth'

By Bonnie Kavoussi

February 27, 2012 | Huffington Post

URL: http://www.huffingtonpost.com/2012/02/27/warren-buffett-corporate-taxes_n_1304432.html

Sachs 'surprised' by CEO's ignorance, avarice

Economist Jeffrey Sachs, director of The Earth Institute at Columbia, is really showing he lives in the ivory tower. In his flabbergasted reaction to former AmEx CEO Harvey Golub's WSJ op-ed, Sachs reveals his ignorance about how fiscally retarded Americans really are, from the meanest unemployment-collecting Tea Party members all the way up to richest millionaire CEOs.

(And what in the world is "somewhat surprising" about the rabidly right-wing editorial pages of the Wall Street Journal publishing a slapdash, angry, ignorant rant from some rich blowhard? That's quotidian. It would be surprising if they didn't.)

All of Sachs' points are well taken... by reasonable, rational people. But again, Sachs, who divides his time among places like New York, Davos, Brussels, and Third World/developing countries, apparently doesn't visit American flyover territory often enough to interact with average Americans, whose intensity of feelings about our country problems bears no relation to a given problem's magnitude.

The sad truth is, most Americans will keep on blaming "high" taxes, "overpaid" teachers, "lazy" minorities, and "corrupt" bureaucrats for our nation's problems, while warning Washington to keep its guvmint hands off their Medicare, long after the collapse of the U.S. middle class and the establishment of a permanent plutocracy. 

Average Americans will not "act, and act resolutely" against the mega-rich who threaten the general welfare; they never have and never will. Because they aspire to be rich assholes themselves someday, even though their prospects are next to nil.

Sadly, scarily, professional scrooge Harvey Golub is in the mainstream of current political mood, and professional problem-solver Jeffrey Sachs is on the fringes.

CEO Follies

By Jeffrey Sachs

August 22, 2011 | Huffington Post

There may be no group of people in the world more out of touch with U.S. ground reality than super-rich CEOs of major U.S. companies railing against Warren Buffett's suggestion that the rich should pay higher taxes. The Wall Street Journal today brings a somewhat surprising case in point ("My Response to Buffett and Obama," by Harvey Golub, August 22, 2011). Former American Express CEO Harvey Golub, generally respected among his peers, lets loose an ill-informed screed that shows the cocoon in which many of these CEOs live their lives.

Before turning to Mr. Golub's list of particulars, let's start with the big picture. U.S. CEOs pull in compensation that is hundreds of times higher than their workers, a far higher multiple than in any other part of the world. Many of them pulled in hundreds of millions of dollars in compensation and stock options over the past decade or so. They shelter their money in endless tax loopholes; live like royalty in a country that once prided itself on being a republic; effectively set their own pay through their pals on the executive committee; and all-too-frequently drive their companies and the U.S. economy into bubbles and frauds, all the while taking tens or hundreds of millions of dollars in compensation.

Now comes Mr. Golub, reportedly with hundreds of millions of dollars in net worth, to tell us that he's upset with those asking him to pay more taxes. He's so upset indeed that half of what he says is utterly absurd. Mr. Golub is incensed that "gifts to charities are deductible but gifts to grandchildren are not." I'm going to assign that little philosophical puzzler to my freshmen students at the start of school this fall.

It gets worse. "Do we really need an energy department or an education department at all?" Golub's confusion on energy seems to be rather primitive. He asks why the government spends money on "solar panels, windmills, and battery-operated cars when we have ample energy supplies in the country." Golub seems to be completely unaware of some rather basic issues in the land, such as greenhouse-gas emissions, the government's role in R&D and environmental management, and the national balance sheet of energy resources. I will make Golub's energy views the second question I pose to the incoming class.

As for Golub's suggestion to close the Education Department, where should we begin? Should we begin with America's low rankings (in the 20s and 30s) in international comparisons of student performance? Or should we take notice of the low levels of educational attainment in the Southern states, where conservative leaders join Golub in hankering to end the Education Department? Or should we first note the soaring costs of college tuition, and the mass dropout rates of working-class kids who can't make it? Or perhaps we should focus on the withering job pool and falling incomes of kids without a college degree, a majority of America's young people?

What's especially absurd, however, is the phony way that Golub argues against the need for more taxes by citing spending programs that he considers wasteful and costly. We all have our list of least-favorite spending, and we should all agree that spending should be cost effective. Yet there is a fundamental falsehood at the core of Golub's rant. The budget deficit has very little to do with Golub's list.

Golub attacks job-training programs, alternative energy, subsidies for sugar farmers and ethanol producers, rail subsidies, unneeded post offices, and energy and education programs. This is not the place to debate the merits of this list in detail. (I can agree on sugar and ethanol, but I would disagree vehemently on most of the others.) This is the place to show the irrelevance of Golub's list.

The entire Education Department budget in Fiscal Year 2012 is around $77 billion. The entire Energy Department budget is around $30 billion. The entire Labor Department budget is $13 billion. Obama's rail programs are around $8 billion. Farm subsidies, even on the most expansive definition, are in the range of $20 billion. Even if we closed all of these departments and programs entirely (and accepted the national catastrophe that would follow), the direct budget savings would be around $150 billion, or roughly 1 percent of GDP. Yet the federal budget deficit this year is roughly $1.4 trillion or 9.5 percent of GDP. Golub's list is a smokescreen, not a solution to anything.

Golub's attack against outlays on education, energy, training, and other programs on the list misses the basic truth of our fiscal arithmetic. Our current tax collections don't even cover Social Security, Medicare, Medicaid, the Pentagon, and interest on the public debt, much less the programs for education, environment, energy, job training and the rest. Golub evades the real question: how the core of the budget - health, social security, defense, interest servicing -- is to be financed. Should we raise taxes and preserve these programs, or should we spare Mr. Golub and his friends of this modest burden on their great wealth, and instead eliminate the core social and health security in this country? Or perhaps Mr. Golub is calling for a default on interest payments?

I'm sure that Golub's own health care and retirement comfort are not in danger. If Golub and like-minded CEOs continue their campaign to resist the tax revenues needed to protect the health and social security for average Americans, implying the need to slash core budget outlays, they will hear an earful. ["An earful"?!? Ooooh, anything but that! - J] That's why Golub has taken the easy way, railing against small targets that play well in the halls of the rightwing American Enterprise Institute that he helps lead. While Golub's targets are generally phony or misguided (yes, we do need education and energy programs), such attacks are less likely to elicit a broad public rebuke than would a frontal attack on social security and health spending.

Golub is one of the most fortunate people on the entire planet. America has treated him well. He perhaps went to public schools and made his way up with plenty of benefits of American society in the middle of the 20th century. He like everybody in his generation owes his prosperity not only to his own deeds ("I did earn it," he writes) but also to the vibrancy of America during the formative years of his career. Mr. Golub's generation, and the generations that have followed, owe a great deal to the New Deal and the vigorous U.S. Federal Government that led the world in technology and rebuilding after World War II, including the promotion of science, technology, national infrastructure, social security, public health, and higher education.

In another age, Golub would be asking what he could do for his country, partly to help ensure a safe and prosperous country and planet Earth for his own children and grandchildren. Not any more. The American people will not forget the irresponsibility of CEOs who are helping to lead the country towards the cliff. Currently the American people are stunned and bewildered. In the future they will act, and act resolutely to secure the future from those who now threaten it.

Buffett: Stop protecting incomes of super-rich

From the mouth of the Über Capitalist himself. Listen up!

(And for those of you who would respond snarkily, "Buffet should make a voluntary donation to the IRS then, ha-ha-ha!" and ignore his call for shared sacrifice, I refer you preemptively to this.)

UPDATE (08.22.2011): On August 19, Reagan budget director Bruce Bartlett wrote a thoughtful response to Buffett's op-ed entitled "Buffett May Be Right, but the Top Tax Rate is Wrong," in which he pointed out, as I have before, that even within the top quintile of income earners there is tax inequality, and that folks making under $1 million probably should not have a tax increase, but those making over $1 and $10 million should definitely have their rates increased -- to 40% and 50%, respectively -- to bring tax rates back to U.S. historical norms. I don't necessarily agree with Bartlett but it shows that compromise is possible with reasonable conservatives.  

Stop Coddling the Super-Rich

By Warren E. Buffett

August 14, 2011 | New York Times

Our leaders have asked for "shared sacrifice." But when they did the asking, they spared me. I checked with my mega-rich friends to learn what pain they were expecting. They, too, were left untouched.

While the poor and middle class fight for us in Afghanistan, and while most Americans struggle to make ends meet, we mega-rich continue to get our extraordinary tax breaks. Some of us are investment managers who earn billions from our daily labors but are allowed to classify our income as "carried interest," thereby getting a bargain 15 percent tax rate. Others own stock index futures for 10 minutes and have 60 percent of their gain taxed at 15 percent, as if they'd been long-term investors.

These and other blessings are showered upon us by legislators in Washington who feel compelled to protect us, much as if we were spotted owls or some other endangered species. It's nice to have friends in high places.

Last year my federal tax bill — the income tax I paid, as well as payroll taxes paid by me and on my behalf — was $6,938,744. That sounds like a lot of money. But what I paid was only 17.4 percent of my taxable income — and that's actually a lower percentage than was paid by any of the other 20 people in our office. Their tax burdens ranged from 33 percent to 41 percent and averaged 36 percent.

If you make money with money, as some of my super-rich friends do, your percentage may be a bit lower than mine. But if you earn money from a job, your percentage will surely exceed mine — most likely by a lot.

To understand why, you need to examine the sources of government revenue. Last year about 80 percent of these revenues came from personal income taxes and payroll taxes. The mega-rich pay income taxes at a rate of 15 percent on most of their earnings but pay practically nothing in payroll taxes. It's a different story for the middle class: typically, they fall into the 15 percent and 25 percent income tax brackets, and then are hit with heavy payroll taxes to boot.

Back in the 1980s and 1990s, tax rates for the rich were far higher, and my percentage rate was in the middle of the pack. According to a theory I sometimes hear, I should have thrown a fit and refused to invest because of the elevated tax rates on capital gains and dividends. [Ha-ha! - J]

I didn't refuse, nor did others. I have worked with investors for 60 years and I have yet to see anyone — not even when capital gains rates were 39.9 percent in 1976-77 — shy away from a sensible investment because of the tax rate on the potential gain. People invest to make money, and potential taxes have never scared them off. And to those who argue that higher rates hurt job creation, I would note that a net of nearly 40 million jobs were added between 1980 and 2000. You know what's happened since then: lower tax rates and far lower job creation.

Since 1992, the I.R.S. has compiled data from the returns of the 400 Americans reporting the largest income. In 1992, the top 400 had aggregate taxable income of $16.9 billion and paid federal taxes of 29.2 percent on that sum. In 2008, the aggregate income of the highest 400 had soared to $90.9 billion — a staggering $227.4 million on average — but the rate paid had fallen to 21.5 percent.

The taxes I refer to here include only federal income tax, but you can be sure that any payroll tax for the 400 was inconsequential compared to income. In fact, 88 of the 400 in 2008 reported no wages at all, though every one of them reported capital gains. Some of my brethren may shun work but they all like to invest. (I can relate to that.)

I know well many of the mega-rich and, by and large, they are very decent people. They love America and appreciate the opportunity this country has given them. Many have joined the Giving Pledge, promising to give most of their wealth to philanthropy. Most wouldn't mind being told to pay more in taxes as well, particularly when so many of their fellow citizens are truly suffering.

Twelve members of Congress will soon take on the crucial job of rearranging our country's finances. They've been instructed to devise a plan that reduces the 10-year deficit by at least $1.5 trillion. It's vital, however, that they achieve far more than that. Americans are rapidly losing faith in the ability of Congress to deal with our country's fiscal problems. Only action that is immediate, real and very substantial will prevent that doubt from morphing into hopelessness. That feeling can create its own reality.

Job one for the 12 is to pare down some future promises that even a rich America can't fulfill. Big money must be saved here. The 12 should then turn to the issue of revenues. I would leave rates for 99.7 percent of taxpayers unchanged and continue the current 2-percentage-point reduction in the employee contribution to the payroll tax. This cut helps the poor and the middle class, who need every break they can get.

But for those making more than $1 million — there were 236,883 such households in 2009 — I would raise rates immediately on taxable income in excess of $1 million, including, of course, dividends and capital gains. And for those who make $10 million or more — there were 8,274 in 2009 — I would suggest an additional increase in rate.

My friends and I have been coddled long enough by a billionaire-friendly Congress. It's time for our government to get serious about shared sacrifice.