As we’ve noted before, the business lobby has gone into high gear to defeat the Obama administration’s proposal to stop allowing corporations to defer taxation on profits they make overseas. “This one hits the bottom line of companies more than any other issue right now. We have to defeat it,” said Ralph Hellmann, the lead lobbyist for the Information Technology Industry Council.
With that in mind, it’s worth looking at how corporations use this deferral to avoid paying taxes. And courtesy of the Wall Street Journal, we have the amount by which some corporations lowered their effective tax rate in 2008 thanks to the current law:
|Corporation||Percentage taxes lowered|
|Johnson & Johnson||12.4%|
|Merck and Co.||11.7%|
Remember, the statutory rate that the right-wing is always up-in-arms about — but which few corporations actually pay — is 35 percent. But General Electric was actually able to lower its effective rate all the way down to 5.5 percent, due to its use of deferrals, tax havens, and other intricacies of the corporate tax code.
According to a report from the U.S. PIRG Education Fund, a $100 billion annual tax burden is shifted to US-based individuals and companies thanks to corporations stowing their profits offshore:
Over ten years, an estimated $1 trillion in revenues is lost due to the use of tax havens and the government must make up for this shortfall. This diversion ends up being shouldered by other companies and taxpayers and is transferred as higher debt for future generations. The recent Senate Budget resolution concluded that the problem of offshore tax havens “means that honest taxpayers face a higher burden.”
And the Oxford University Centre for Business Taxation has found that corporations allowed to defer taxation on offshore profits will leave that money offshore regardless of their home nation’s tax rate. Indeed, when given the opportunity to bring this money back to America at a lower tax rate in 2004, corporations used most of the money “to buy back stock from shareholders, not to invest in domestic operations.”