This week, the Joint Committee on Taxation released a report looking at six different U.S. companies — identified simply as Alpha, Bravo, Charlie, Delta, Echo and Foxtrot — and the ways in which they take advantage of the loophole-ridden U.S. tax code to evade the corporate income tax. The six companies “reported effective tax rates at least 10 percentage points lower than the U.S. statutory rate for a period of years.”
One company in particular, which was labeled “Delta” in the report, makes about half of its income in the United States, but counts far less as subject to U.S. taxes. “Approximately 45 to 55 percent of Delta’s revenue is from U.S. operations, but an average of only 10 percent of its earnings before income taxes are reported as U.S. earnings,” the report shows.
Some House Democrats, as well as the Obama administration, have attempted for the last two years to crack down on this sort of reclassification of income for the purpose of tax dodging. Multinationals “shift the burden of paying for our national security and homeland security and other public services to small businesses and family taxpayers, who play by the rules and do not engage in these shenanigans,” said Rep. Lloyd Doggett (D-TX).
Rep. David Camp (R-MI), however, justified the tax dodging, saying that if the U.S. just cut its corporate tax rate, such evasion wouldn’t happen:
[Camp] criticized the pamphlet for focusing on what the authors acknowledged did not attempt to be a representative sample of companies. He said the U.S. statutory corporate income rate of 35 percent, now the world’s second highest, “puts pressure” on companies to shift income.
First, Camp is characterizing the U.S. corporate tax rate as the world’s second-highest, which, while true on paper, does not account for the myriad credits, deductions, and straight-up loopholes that are available for corporations to lower their tax rate. Despite having a higher rate than many developed countries, the U.S. raises far less in corporate revenue. In fact, “the U.S. Office of Management and Budget estimates corporate tax receipts will account for just 7.2% of federal revenues in 2010, with large corporations contributing less than one-sixth as much as small business and individual taxpayers to the Federal Treasury.”
But furthermore, Camp is entirely dismissing huge multinationals dodging taxes, which shifts the tax burden onto individuals and businesses that don’t engage in such avoidance, and who ultimately have to pay more to make up for the lost revenue. Annually, individual and corporate tax evasion results in a $100 billion burden being dumped back onto those who pay the full statutory rate.
There can be a legitimate debate over whether the statutory rate is too high, but enforcing payment of the rate that is on the books shouldn’t be controversial. To that end, Doggett has introduced the International Tax Competitive Act of 2010, which “would treat a company as a U.S. company for tax purposes if its management and officers with day-to- day control are located in the U.S., even if its paper incorporation is offshore.”