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Hullabaloo


Wednesday, March 27, 2013

 
Pity the poor over-taxed American corporation

by digby

You hear a lot about how terrible our tax system is for the benighted American corporate community. But according to this, it is limping along quite ably:

Procter & Gamble, the Cincinnati-based company behind Pampers diapers and Tide detergent, reported a federal tax burden in 1969 that was 40 percent of its total profits, a typical rate in those days.

More than four decades later, P&G is a very different company, with operations that span the globe. It also reports paying a very different portion of its profits in federal taxes: 15 percent.

The world’s biggest maker of consumer products isn’t the only one. Most of the 30 companies listed on the country’s most famous stock index, the Dow Jones industrial average, have seen a dramatically smaller percentage of their profits go to U.S. coffers over time, even as their share prices have driven the Dow to an all-time high.

A Washington Post analysis of data from S&P Capital IQ, a research firm, found that in the late 1960s and early 1970s, companies listed on the current Dow 30 routinely cited U.S. federal tax expenses that were 25 to 50 percent of their worldwide profits. Now, most are reporting less than half that share.

The reason is not simply a few loopholes tucked deep in the tax code. It’s far bigger: the slow but steady transformation of the American multinational after years of globalization. Companies now have an unprecedented ability to move their capital around the world, and the corporate tax code has not kept up with the changes.

Just the opposite, in fact. Experts say the U.S. code has encouraged companies to shift their income overseas, where it is more lightly taxed by the U.S. government. Many firms, in turn, have discovered that just as they can move their manufacturing to other parts of the world, so, too, can they shift their income to far-flung tax havens such as the Cayman Islands.

The result is lower revenue here that could pay for infrastructure, education and other services that support domestic growth — and that make life easier for U.S. firms.

The president proposed a tax reform package that hasn't gone anywhere, but which he would love to include in his Grand Bargain. Recall this from last year:

President Obama asked Congress on Wednesday to scrub the corporate tax code of dozens of loopholes and subsidies to reduce the top rate to 28 percent, from 35 percent, while giving preferences to manufacturers that would set their maximum effective rate at 25 percent... The administration plan to revamp a corporate code that is widely derided as inefficient and anticompetitive has been in the works at Treasury for two years, and is a priority of Mr. Geithner. Yet he has been preoccupied with crisis management, and is unlikely to see the project through since he plans to leave office after this year.

“The current tax code was written for a different economy in a different era,” Mr. Geithner said, citing such changes as the Internet revolution, cellphones, the rise of China and other emerging markets and a global trend to lower corporate rates. “It needs to be reformed and modernized.”

Republicans and business groups complain that the 35 percent corporate tax rate is among the highest in the world, leaving American companies at a competitive disadvantage. They typically seek a 25 percent rate, with many of them saying that the current tax breaks should be kept in place as well.

Earlier this year, Mr. Obama proposed to end tax breaks for companies that move jobs overseas and to create new breaks for those that bring jobs back.

Unfortunately, while that sounds like a good idea that might raise some money to avoid painful austerity, well, no ...

Mr. Obama is proposing that the simplification of the corporate code should not add to the deficit, and that most or all revenue raised by closing tax breaks should be used to lower rates or offset the cost of new or existing tax breaks favoring manufacturing, clean energy, and research and development activities, according to administration officials.

So, this plan would lower rates from 35 to 28% while cutting "loopholes." And whatever money is raised (even the estimated bilions from the backdoor tax hikes from the chained CPI) would go to new tax breaks for various industries, not to help pay for the vital programs that are on the chopping block in either the sequester or the Grand Bargain. Neither would it go to pay down the deficit.

So, it is merely a reshuffling of the deck chairs on the Titanic. It would be a "reform" of the way things are currently taxed, to be sure and it's very possibly a fantastic reform on the merits. But it has no meaning in terms of the deficit or government services and anyone who claims that it is going to "balance" the cuts to vital programs isn't being entirely straight. Even if they count the "revenue" from tax reform against the deficit, it's patently obvious that step two is to create new "incentives" (aka loopholes) for different businesses to offset it. I'm sure they'll have no problems passing such a change with a huge bipartisan majority if it comes to that.

As I said, these changes may very well be a good thing for the economy. The tax code is a maze of special interest legislation and I'm sure there's a better way to do it. But everyone should be aware that any Grand Bargain which includes this "tax reform" comes at the expense of the most vulnerable populations in this country, not the corporations.


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