Democrats and Republicans Are Quietly Planning a Corporate Giveaway — to the Tune of $400 Billion
This post originally appeared at The Nation.
Young people are the good news of 2016. They see the stressful realities of American life more clearly than their elders and are rallying around the straight talk of Bernie Sanders. Meanwhile, the big hitters back in Washington politics are working on an ugly surprise not just for the kids but for all of us — another monster tax break for US multinational corporations.
The bad news is that key leaders of the Democratic Party — including the president — are getting on board with Republicans, despite some talk about confronting income inequality. Influential Democrats intend to negotiate with Republican counterparts on the size and terms of post-facto tax “forgiveness” for America’s globalized companies. This is real money they’re talking about — a giveaway of hundreds of billions.
Why haven’t voters heard about this from candidates? Because Republicans and Democrats both know it would make angry voters even angrier.
The major multinationals complain about a tax problem that most citizens would love to have for themselves: Thanks to a loophole in the tax code, the companies do not have to pay US taxes on profits they have earned in foreign countries until they bring the money home to American shores. Altogether, the globalized US companies have accumulated $2.1 trillion in untaxed profits, most of it parked in overseas tax havens.
The multinationals are waiting for Congress to forgive them their debts.
The facts are obscure but not secret. Even so, political reporters covering the candidates have shown little interest in alerting the public. I blame them for failing democracy.
That is, the US companies insist they won’t bring the money home and pay the taxes they owe until Washington pols steeply reduce the rate to bargain-basement levels. That’s tax “forgiveness” on a grand scale. What the companies also demand is a permanently lowered tax rate on their future earnings. Some leading Republicans advocate eliminating taxation of foreign corporate income entirely.
Imagine if average citizens were given this kind of discretion for their personal income tax. You could tell the IRS you regard your tax liability as unfair, so you’re not going to pay it until Congress enacts a lower rate. Don’t try this dodge in real life. They will come after you.
Many politicians are attracted to cutting a deal with the corporations because they’re in a bind of their own. Given the intense budget battles, the House and Senate often can’t even agree on how to pay for essential government projects and services. The tax-forgiveness scheme could bring home hundreds of billions in supposedly “new” revenue for those vital projects.
For cynical politicians, the deal looks like a “twofer.” You can please constituents with infrastructure projects and reward corporate patrons in the same stroke. In reality, of course, the revenue loss from the giveaway will inevitably be dumped on other taxpayers, either by cutting domestic programs or running up the national debt.
To put it plainly, this trade-off is certain to worsen income inequality, because the money goes to the very people — shareholders and corporate execs — who have already done fabulously well at the expense of other Americans.
Senator Elizabeth Warren, as she often does, found the right words to describe this transaction. She called it “a giant wet kiss for the tax dodgers.” Warren and Senator Sanders have repeatedly charged that the system is rigged. What’s particularly outrageous about this new rigging of the tax code is that even though the politicians are engineering it in the midst of a presidential election, most voters don’t have a clue.
The facts are obscure but not secret. Even so, political reporters covering the candidates have shown little interest in alerting the public. I blame them for failing democracy. Campaign reporters are horse-race junkies who typically take their cues from political insiders, not untutored citizens.
The threat of corporate flight is now made explicit by the lobbyists and cheerleaders: If Congress doesn’t give them a sufficiently generous tax break, some of the biggest corporate names may decide to leave.
The politicians are actually plotting a repeat plundering. Back in 2004, when President George W. Bush was running for re-election and John Kerry was his opponent, they agreed upon a similar proposition. Both were snookered, but it was ordinary citizens who were really screwed. The measure was called the American Jobs Creation Act of 2004, and companies repatriated $362 billion at a reduced tax rate of 5.25 percent.
Then they walked away from the jobs promise. In fact, the largest companies killed jobs after they got the money — some 60,000 jobs — moving them overseas to low-wage, low-tax countries. They used their windfall to boost stock prices and thereby enrich investors and CEOs. Now the same crowd is planning a rerun, counting on the wayward press to maintain public ignorance.
Warren’s “tax dodgers” are not what are usually thought of as scumbag swindlers. They are the blue chips of American capitalism, drawn from the high-tech and pharmaceutical sectors as well as the biggest barons of Wall Street. Let’s name some names.
The top 10 multinationals that would reap the largest boodle from this deal are Apple, Microsoft, Oracle, Citigroup, Amgen, Qualcomm, JPMorgan Chase, Gilead Sciences, Goldman Sachs and Bank of America. According to Citizens for Tax Justice, these 10 collectively owe $162 billion in unpaid taxes on the $540 billion in profits they’ve parked offshore.
Under the proposal offered by President Obama, the standard statutory tax rate of 35 percent would be reduced to a onetime, bargain-basement rate of 14 percent. This would enable the fortunate 10 to save $97 billion. An alternative Republican proposal would raise the giveaway to $122 billion.
The entire list of winners — the scores of multinationals holding $2.1 trillion in offshore profits — could save as much as $400 billion in taxes owed if bipartisan Washington gives in to the corporate bandits.
Citizens may be weary of Washington scandals, but this squeeze by the multinationals is a grand champion of corrupted democracy. It looks like bank robbery at gunpoint. The corporates are saying to Congress: Give us the money or we pull the trigger.
If average citizens learned about this grand heist, they would be reaching for pitchforks. People who love Donald Trump would be especially troubled to learn that Trump has, in his way, endorsed what the corporate bandits are after.
The trigger in this case is the threat to use another notorious tax loophole called “corporate inversion.” A company can decide for tax purposes to drop US citizenship and move to Ireland or some other inviting nation by arranging a merger or acquisition by a foreign corporation. Some 50 corporations — most recently Pfizer, the giant drugmaker — have announced that they are using this device to escape US tax obligations. They don’t actually have to move factories or headquarters. It’s a tax gimmick (a lot of this offshore money is actually deposited in US banks).
But the threat of corporate flight is now made explicit by the lobbyists and cheerleaders: If Congress doesn’t give them a sufficiently generous tax break, some of the biggest corporate names may decide to leave. Instead of repealing the outrageous loopholes, gullible members of Congress now claim they have no choice but to appease the bankers, the techies and the drugmakers.
If average citizens learned about this grand heist, they would be reaching for pitchforks. People who love Donald Trump would be especially troubled to learn that Trump has, in his way, endorsed what the corporate bandits are after. He tells audiences that corporate inversions are a terrible, terrible problem…but not to worry! His good friend Carl Icahn — the notorious corporate raider — knows how to fix the problem. What Trump neglects to say is that Icahn’s solution is for Congress to enact the monster tax reduction the multinationals are demanding.
The only way to stop the inversions, Icahn insists, is to give the companies what they want. Furthermore, he’s created a $150 million super PAC that he intends to use to punish members of Congress “responsible for this ridiculous and unconscionable situation.” Icahn says in broad daylight what the money guys usually say behind closed doors.
If this deal goes through, Icahn’s investment firm will itself reap $440 million in tax forgiveness on its stock holdings in Apple alone. Of course, Icahn doesn’t need the money. He’s worth $18.5 billion, the 43rd-richest person in America, according to Forbes magazine. If voters grab pitchforks to go after Trump, they should go after his pal Icahn, too.
The informal politics surrounding this issue proceeds more like a silent auction than a public campaign. Starting last summer, various Washington players began posting “bids” on how much tax revenue they think Congress should pay in ransom to the bandits. Not until the lobbyists settle on the correct bid will the companies allow Congress to proceed with the legislation. Nothing demonstrates the corporate stranglehold over both political parties more starkly than this maneuver.
Obama’s business-friendly, onetime bid of 14 percent was dismissed as too little, too late, not just by Republicans but by leading Democrats, too. The president also proposes permanently lowering the corporate tax rate from 35 to 28 percent. Republicans, it is understood, want more generous forgiveness — a onetime rate of less than 10 percent. According to his website, Trump has bid for a onetime rate of 10 percent on repatriated profits and a reduction of the permanent rate from 35 to 15 percent. That should make the multinationals feel loved by the Donald.
Others chimed in. California Senator Barbara Boxer, usually depicted as an arch-liberal in the media, represents Silicon Valley tech companies and has teamed up with Senator Rand Paul, the Kentucky GOP libertarian, to propose a onetime tax rate of 6.5 percent — a very wet kiss for Apple, Microsoft, Oracle and other globe-trotting American heroes.
These preliminaries gained momentum in recent weeks when two GOP leaders — House Speaker Paul Ryan and Senator Orrin Hatch, chair of the Senate Finance Committee, which writes tax legislation — separately announced their intention to introduce broader measures for “international tax reform” in time for debate this fall. Hatch’s grand reform would virtually eliminate the offshore tax problem by telling companies to pay taxes only in the countries where they produce things — inviting global competition among nations to attract factories by slashing rates. The GOP legislators want their groundwork to frame the debate, regardless of which party wins the White House.
An announcement last summer by Senator Charles Schumer of New York was a telling hint of his party’s intentions. Schumer, the senator from Wall Street, is expected to become the Democrats’ floor leader in 2017. He has partnered with GOP Senator Rob Portman of Ohio in recruiting fellow senators for a bipartisan alliance on tax “reform.”
The group hasn’t announced a specific bid, but Schumer and Portman agree that President Obama’s bid is not generous enough to our richest corporations and their CEOs and shareholders. The Schumer group instead described the organizing principles for a two-party deal. Among their goals was “a onetime transition toll charge significantly lower than the statutory corporate rate.” That sounds like the steep tax discount that America’s global champions want.
Democrats are a soft touch for cutting business taxes, one insider told me, because the party of the working class has to vote against business on so many other issues like climate change and labor standards.
Some Dems find it strange — and disturbing — that their prospective Senate leader is making common cause with a GOP senator who faces a tough re-election race this fall. Shouldn’t Schumer be trying instead to defeat Portman and other GOP senators to regain a Democratic majority? Instead, Schumer boasted that he’s recruiting senators from the left and center of his party to cooperate with Republicans. He mentioned Sherrod Brown of Ohio, a loyal advocate for workers and jobs, and Mark Warner of Virginia, a pro-business moderate.
I have been a longtime admirer of Senator Brown, but this news makes me nervous. He has vowed that “under no circumstances” would he support another “tax holiday” for the corporations. Brown sits on the Finance Committee, where maybe he can gather allies to prevent Schumer from making a rotten deal. But he only has one vote, and obviously he wants to do a deal.
In fact, Democrats opposed to the “wet kiss for the tax dodgers” are in a very weak position in the halls of Congress. In their campaigns against inequality and for tax fairness, Bernie Sanders and Elizabeth Warren may be describing the Democratic Party of the future, but it’s certainly not the one that exists right now. The insider baseball is rigged to marginalize left-liberal members. The Finance Committee has no Democratic member who is flatly opposed to the deal-making. And 1,500 corporate lobbyists are working for the other side.
Democrats are a soft touch for cutting business taxes, one insider told me, because the party of the working class has to vote against business on so many other issues like climate change and labor standards. This helps to explain the growing alienation of working-class Americans.
Taxation is complicated stuff, and a fog of deceitful propaganda already envelops the subject. To get straight facts, I recommend two tough-minded, truth-telling organizations: Citizens for Tax Justice, led by Robert McIntyre, and Americans for Tax Fairness, run by Frank Clemente, are rallying opponents of this royal scam.
The essential lie peddled by corporate camp followers is that the US corporate tax rate of 35 percent is the highest in the world and crippling America’s globe-trotting companies. As lobbyists well know, this is a load of crap. The actual effective tax rate is far lower than 35 percent (maybe around 20 percent), once corporations apply all their wondrous loopholes and creative accounting. Some major names like General Electric are so adept at dodging that they frequently pay zero taxes. Some years, the government owes money to GE. And this is all legal.
More to the point, the politically neutral Congressional Research Service concluded that the effective US corporate tax rate is actually about the same as the effective tax rate of the companies’ leading competitors in other industrial economies, all things considered.
But never mind facts. It’s very difficult to reason with a robber holding a gun to your head. A good many elected politicians suffer from the Stockholm syndrome; they identify with their captors. It will require a political strike force and more than one election cycle to rescue democracy from the bandits and liberate the country for citizens.
If the big corporations wish to leave America, I say good riddance — call their bluff. On their way to the door, though, Congress should present them with their unpaid due bills. It should cover not only the taxes they have dodged for years but also the much larger debt they owe the country for all the free services and subsidies they received from taxpayers as they developed their profit-making machinery. If accounts were settled fairly, Congress would have plenty of money to spend. If lawmakers found the courage to cut off the corporate free riders, that would be a political revolution.
It sounds improbable, but this scandalous predicament is actually a rare opportunity for progressive reformers. The people can win this fight if they learn the facts and bring this shocking mess out into the daylight. I believe a very public and noisy effort from citizens would break through the silence and shame the players in both parties who timidl — or all too eagerly — go along their captors.
What does Hillary Clinton think about this scandal? Citizens should ask her everywhere she goes. But don’t leave out Republican candidates. Ask them too, and ask those Tea Party irregulars. Are they on board with bank robbers? Or fed-up citizens? Ask your senators and representatives which side they are on.
They say this is the year of rebellion. I hope it’s only the beginning. There is the promising possibility that this time, voters will instruct the powerful rather than the other way around. People are learning they can do more than listen.
The views expressed in this post are the author’s alone, and presented here to offer a variety of perspectives to our readers.