Apple CEO Tim Cook testified Tuesday before the Senate Permanent Subcommittee on Investigations, following that panel’s report that Apple has avoided tens of billions of dollars in U.S. tax liability through complex, lawful multinational structures. Cook was the latest head of a major technology company to face Senate scrutiny for its corporate tax behavior, after the same panel summoned Microsoft and Hewlett-Packard executives in September 2012.

Just as his competitors did before the same Senate panel last fall, Cook defended his company’s tax strategies as both legal and in his shareholders’ interests. Cook’s endorsement of corporate tax reform was more specific than the broad support Microsoft executive Bill Sample offered last year. But his support for lowered rates, closed loopholes, and doctrinaire reforms is unlikely to take the heat off the eye-popping tax behavior that inspired the hearing.

The panel’s investigation found, with Apple’s cooperation, that the company’s three Ireland-based subsidiaries “have no tax jurisdiction at all,” as The Guardian explains, allowing it to shelter tens of billions in sales from not just U.S. but all taxation.

The complex arrangement includes three subsidiaries, based ostensibly in Ireland, which appear not to be designated as tax resident anywhere, the committee said. A source on the committee called them “iCompanies – I for imaginary, invisible”.

The commitee said that the arrangement, described by one senator as “the epitome” of tax-avoidance schemes, allowed Apple to pay only very small amounts of tax on much of its overseas profits, thanks to the Irish companies that exist “nowhere” for tax purposes. […]

One of those Irish affiliates, Apple Sales International (ASI), reported sales income of $74bn over four years but paid hardly any tax. In 2011 ASI had pre-tax earnings of $22bn but paid just $10m in tax, a rate of 0.05%.

Citizens for Tax Justice says Apple is holding fully $102 billion in untaxed offshore cash. The Financial Times notes Apple is careful to maintain appearances, however. It’s reported tax rate of 25.2 percent for 2012 “is an accounting entry and has no effect on the actual amount of taxes paid,” which amount to more like a 15 percent effective tax rate.

Throughout the hearing, both senators and witnesses repeatedly acknowledged that Cook and his fellow executives are indeed operating within the law. The dispute is over how policymakers should respond to a corporate tax code so riddled with loopholes and bad incentives that Apple and other multinationals behave in this way. As corporations have manipulated the flaws in that tax code and payroll taxes have increased, working people have replaced companies as a primary source of tax revenue:

One response to the flawed corporate code, supported by many businesses, would be to offer a tax holiday on repatriated profits currently sheltered overseas. Congress tried such a holiday before, and it was a massive failure. Cook’s rejection of this approach was heartening, but the rote ‘simplification’ of the system he repeatedly endorsed amounts to what’s known as a territorial approach, whereby loopholes are closed and the tax code is rewritten such that companies pay U.S. taxes on U.S. revenues.

For all their simplicity, such territorial systems encourage an international race to the bottom on corporate taxation, as Europe has discovered. Last week, Bloomberg’s Jesse Drucker detailed the perverse corporate tax outcomes created by European policymakers who talk about making it harder to dodge taxes but whose policies actually make it easier.

Threading the policy needle between race-to-the-bottom territorial policy, tax holiday giveaways, and the current ineffective legal web is quite difficult. But economist Alan Auerbach has one idea, explained in a paper jointly published by the Center for American Progress and the Hamilton Project, that would seem to balance both government and corporate interests. Auerbach suggests that multinational companies pay their taxes only in the countries that use their products, so that moving money across borders doesn’t alter the taxes they owe in any given country. Tim Fernholz of Quartz explains that Auerbach’s idea strips “the ability to move US profits overseas” artificially, as present law has encouraged Apple to do. With a few other tweaks, this could make it more attractive to invest in the U.S.

So far, today’s hearing has not entertained this notion of destination-based taxation on multinational activity. But it’s the sort of Gordian Knot approach to a longstanding, costly policy tangle that might appeal to the head of a company that once made “Think Different” its global slogan.

Fix the Debt, a group of CEOs at some of the country’s largest corporations, has been pushing an anti-debt agenda with stern warnings about the urgent need for deficit reduction. But many of its members have benefitted from a loophole in the tax code that has allowed them to deduct “performance pay” from their executive salaries and thus avoid paying millions in taxes.

A new report from the Institute for Policy Studies and Campaign for America’s Future finds that 90 member firms took in somewhere between $953 million and $1.6 billion through the ability to deduct performance pay from corporate taxes between 2009 and 2011. The report includes the biggest winners of this loophole:

– UnitedHealth Group: This company was at the top of the list, deducting at least $194 million of its total $199 million compensation for CEO Stephen Hemsley during that time period. The report calculates that this works out to a $68 million taxpayer subsidy to UnitedHealth, plus another $10 million tax break for Hemsley’s $28 million performance pay in 2012.

– Discovery Communications: This company came in second, deducting $105 million of a total compensation package of $114 million for CEO David Zaslav from 2009 to 2011. That comes to a $37 million taxpayer subsidy. It got another $9 million tax break for his performance pay in 2012.

– Caesars Entertainment: Even though this company has been losing money in recent years, CEO Gary Loveman made $9.6 million in cash bonuses during that time.

During that three-year period, CEOs and the next three top executives at each of the 90 Fix the Debt corporations were paid a total of $6.3 billion, 75 percent of which was in fully deductible performance pay, equaling $2.7 billion. Depending on how everything was calculated (which is hard to know with current disclosure rules), that comes to about $1.5 million in taxpayer subsidy per executive or $18 million per company.

The group has previously pushed for tax reform that would result in even bigger windfalls for the corporations they represent, potentially netting them $134 billion. Members have also been vocal in calling for cuts to Social Security while themselves enjoying millions of dollars saved in their personal retirement accounts.

As the corporate tax reform debate continues to simmer in Washington, a new report from the Government Accountability Office shows that America’s corporations received $181 billion in tax breaks in 2012, an amount equal to what they actually paid in taxes. That’s the largest total of corporate tax breaks since 1986, and the bulk of the breaks come from two areas: a new provision, enacted in 2011, that allows corporations to write off 100 percent of capital expenses and the long-standing provision that allows corporations to exempt overseas profits from taxation until they return them to the United States.

The increase in claimed tax breaks comes as corporations hauled in record profits last year, largely because they pushed more money into overseas tax havens like Bermuda, the Cayman Islands, and Luxembourg. The largest American corporations now hold nearly $1.5 trillion overseas, and avoiding taxes on foreign profits made up a sizable share of the breaks they claimed in 2012, Reuters reports:

Corporate tax deferral, the potential indefinite postponement of U.S. taxes on profits held offshore, makes up nearly a quarter of that sum, according to a Government Accountability Office report released on April 15, which is the deadline for individuals to file their tax returns.

Even as the amount held overseas is increasing, corporate lobbying groups and congressional Republicans are pushing reforms that would only make offshoring profits easier. A so-called “territorial” tax system, favored by the GOP and corporations, would exempt most foreign profits from any American taxation, providing further incentive to move profits to tax havens. By pushing investment overseas, a territorial system would lead to the creation of 800,000 jobs in foreign countries that could have otherwise come to the U.S., according to one economist.

The push for such system has stemmed from complaints that the U.S. has the highest statutory corporate tax rate in the world, and while that is true, few corporations actually pay it. The U.S. collects less in tax revenue as a percentage of its economy than all but one other industrialized country, and corporate tax levels fell to a 40-year low in 2011 even as profits hit a 60-year high. According to a recent report from the U.S. Public Interest Research Group, corporate tax avoidance cost the average individual taxpayer $1,026 in 2012 alone.

America’s largest corporations have stashed nearly $1.5 trillion in offshore tax havens like Bermuda, the Cayman Islands, and Ireland — countries where they do little business but claim massive profits due to low tax rates. As a result, corporate tax rates fell to a 40-year low in 2011 even as profits rose to a 60-year high.

Tax avoidance from corporations and wealthy individuals has a cost for individual taxpayers and small businesses, according to a new report from the U.S. Public Interest Research Group. According to U.S. PIRG, tax dodging cost individual taxpayers $1,026 and each small business $3,067 in 2012.

Those costs don’t necessarily come from higher taxes; instead, they often come in the form of higher budget deficits or, as they are now, from substantial cuts to public programs and services that benefit middle- and low-income families. “This is a real loss and it’s putting great pressure on the budget and all kinds of investments and programs that the federal government needs to continue to fund,” Michigan Sen. Carl Levin (D) said on a conference call unveiling the report today. Levin has authored legislation calling for the closure of tax loopholes that incentivize the offshoring of profits. “It’s time to close the loopholes, reduce the deficit to protect these important investments in our future, and to bring some fairness back to the tax code,” Levin said.

As corporate tax reform becomes a hot topic in Washington, however, corporations are pushing for reforms that would make it even easier to offshore profits. A “territorial” system, desired by corporations and corporate lobbying groups, would exempt most foreign profits from American taxation and allow corporations to return profits to the U.S. without taxing them. But Dan Smith, the tax and budget director at U.S. PIRG and co-author of the report, said such a system would only make corporate tax dodging worse.
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Japan lowered its corporate tax rate one year ago this week, leaving the United States with the highest statutory corporate tax rate in the world. And as Washington turns its focus to corporate tax reform, groups of corporations aren’t letting lawmakers forget the anniversary.

The RATE Coalition, a group of corporations advocating for lower tax rates, sent top tax writers in the House and Senate a letter today noting the anniversary and renewing their push for lower tax rates, The Hill reports:

“Coupled with our complicated tax system, this rate makes American businesses less competitive and makes the U.S. a less attractive place for investment, ultimately harming businesses, investors, workers and consumers,” 18 executives and a pair of interest group presidents wrote to the top tax writers in both the House and the Senate.

“We know that some choices may be difficult and understand that base-broadeners, such as eliminating tax expenditures, may be necessary to achieve the significant reduction in the statutory rate that is required for the U.S. to better compete globally,” the executives added.

RATE isn’t alone. Business Roundtable, another corporate lobbying group that includes some of RATE’s members, announced plans to spend hundreds of thousands of dollars lobbying for lower corporate tax rates.

But while the companies are correct that America’s corporate tax rate is statutorily the highest in the world, what they aren’t noting is that few corporations actually pay the 35 percent rate. In fact, even as profits for American corporations hit a 60-year high in 2011, their effective tax rate hit a 40-year low, and the U.S. collects less in taxes as a percent of the total economy than every industrialized country in the world save Iceland. It’s been 45 years since corporations paid the full top tax rate, and 26 American companies avoided taxation altogether over the past four years.

Some of RATE’s members do, in fact, pay a rate equal to America’s top corporate tax rate. But corporations as a whole do not, largely because they are keeping record amounts of money in offshore tax havens in countries where they barely do business at all. To top it off, many of the corporations (though not RATE specifically, according to its letter) lobbying for reform are pushing for a “territorial” tax system that would make it even easier for them to shield profits from American taxation while leading to more investment and job creation in foreign countries.

As large American companies continue to lobby Congress for tax reform that would lower their tax rates, a study of historical corporate tax rates found that they are in fact paying at rates roughly half of those they paid decades ago.

The Washington Post analyzed 30 large companies listed on the Dow Jones Industrial Average — companies like McDonalds, Microsoft, and Exxon Mobil — and found that their tax rates have fallen even as profits have risen, thanks in large part to tax laws that provide incentives to store overseas profits in offshore tax havens. Many of the companies, the Post found, are paying rates less than half what they paid in the 1960s and 1970s, and most of the 30 have vastly reduced their rates in that time:

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. [...]

Out of all the firms in the Dow 30, 22 have seen a drop of more than 10 percentage points between the oldest year for which data are available and the most recent year.

American tax law allows companies to shield foreign profits from taxation until they are brought back to the United States, and corporations have happily obliged. The largest 83 corporations moved $166 billion overseas in 2012 alone, bringing their total to $1.46 trillion, and most of it, according to a Congressional Research Service study, was kept in tax havens like Bermuda, the Cayman Islands, Luxembourg, and Ireland. As a result, they have seen huge reductions in tax rates: McDonald’s, for example, saw its tax rate plunge from 37 percent in 1973 to 14 percent in 2012.

Corporate profits hit a 60-year high in 2011, right as the effective corporate tax rate hit a 40-year low. America’s largest companies, in fact, haven’t paid the full corporate tax rate in 45 years, and 26 have avoided taxation altogether for the past four years. At the same time, business leaders have lobbied Congress to reform the corporate tax code by adopting a territorial tax system that would exempt most foreign profits from American taxation, making it even easier for the companies to shift profits, investments, and jobs overseas.

One analysis found that a territorial system would lead to the creation of 800,000 jobs in other countries that otherwise could have been created in the United States. An alternative tax reform that closes corporate loopholes that lead to the offshoring of profits and jobs wouldn’t bring the tax rate back to historical levels, but it would still generate roughly $168 billion in revenue over the next decade.

A top lobbying group for major chief executives is set to begin a campaign calling on Congress to achieve corporate tax reform that lowers tax rates, shields offshore profits from taxation, and does not raise any new revenue.

Business Roundtable, a collection of CEOs from top business groups, will spend at least hundreds of thousands of dollars pushing to lower the corporate tax rate to 25 percent, while also pushing for the adoption of a “modified-territorial” tax system that exempts most offshore profits from taxation and makes it easier to move even more profits to tax havens, The Hill reports:

The CEO group — which says it will spend well into six figures on the campaign, using both print advertisements and digital outreach — calls for reducing the top corporate tax rate from 35 percent to 25 percent, a marker that’s also been laid down by Rep. Dave Camp (R-Mich.), the chairman of the House Ways and Means Committee.

Roundtable officials are also pressing for a revenue-neutral corporate reform, meaning the rewritten code wouldn’t bring in more or less revenue than it did before, and the adoption of a modified territorial system, which would shield offshore corporate income from taxation.

A territorial tax system has for years been a top priority of multinational corporations based in the United States, and it has been adopted by top Republicans (including 2012 presidential candidate Mitt Romney) too. Such a tax system, however, would “increas[e] incentives to shift business operations and reported income to countries with lower tax rates,” according to the Congressional Budget Office, and that’s an incentive American corporations don’t need. The largest companies already have nearly $1.5 trillion sitting offshore, according to recent reports.

And while the lobbying group insists that the package of tax cuts and other reforms should be revenue neutral, the effective corporate tax rate plunged to a 40-year low in 2011 even though corporate profits have hit a 60-year high. Corporations haven’t paid the full tax rate in 45 years, and 26 major companies paid absolutely nothing in taxes over the last four years. Meanwhile, closing corporate tax loopholes that incentivize moving jobs and investment overseas could raise an additional $168 billion in revenue over the next decade.

Even as American corporations are raking in record profits, the largest among them are shifting larger amounts of money away from the United States and into offshore tax havens that allow them to pad their bottom lines even more, according to multiple analyses of legal filings made since the beginning of 2013.

The Wall Street Journal found that the 60 largest companies moved $166 billion offshore in 2012, shielding 40 percent of their earnings from American taxes and costing the U.S. billions in lost revenue:

The amount of money at stake is significant, particularly when the U.S. budget deficit is high on the political agenda. Just 19 of the 60 companies in the Journal’s survey disclose the tax hit they could face if they brought the money back to their U.S. parent. Those companies say they might have to pay $98 billion in additional tax—more than the $85 billion in automatic-spending cuts triggered this month after the White House and Congress couldn’t agree on an alternative.

A similar analysis from Bloomberg found that 83 of the largest American companies moved $183 billion overseas in 2012, bringing the total offshore to $1.46 trillion for those 83 companies alone. Most of the companies, like Apple, Microsoft, and Yahoo, have set up subsidiaries in low-tax countries like Bermuda, Ireland, and the Cayman Islands specifically to receive tax benefits. That has ramifications for states, which lost $42 billion in revenue to corporate tax dodging in the last three years alone, and taxpayers and small businesses, who often have to pick up the tab.

And while the debate over corporate tax reform has flared again in Washington, the favorite reform of Republicans and corporate lobbying groups would only exacerbate the problem, making it easier for corporations to push even more money overseas at the expense of revenue and investment that could be made in the United States.