American companies are finding new ways to dodge paying taxes.
Corporate America doesn’t like paying taxes. And it will go to great lengths to reduce (or eliminate) what it pays.
“By exploiting existing loopholes and devising new ones, some of the country’s best-known companies are making it harder than ever for the federal government to replenish its already depleted coffers,” The New York Times said.
These practices have led business income tax revenue to remain relatively unchanged at about 2 percent of gross domestic product at the same time corporate profits have hit record highs, according to the Times.
Business taxes used to make up 30 percent of federal revenue following World War II. Now corporate taxes have dwindled to 10 percent of government revenue, and some years the percentage has dipped to 6.6 percent. The Times said:
The decline is the result of the rise of untraditional business structures, the effects of a more globalized economy and a labyrinth of subsidies and tax credits. And though the erosion has happened gradually over decades, the surging popularity of inversions — acquisitions of overseas companies that allow American corporations to reincorporate abroad — is raising concerns that an already precarious situation is growing untenable.
Recently we told you that inversions would cost the government nearly $20 billion in taxes over the next decade.
According to Tim Dickinson of Rolling Stone, inversions are just a small part in the “greatest tax dodge in world history.” He said corporations are avoiding paying taxes by siphoning huge sums of money (more than $2 trillion) into tax-haven shell companies outside the U.S., where it can’t be touched by the IRS.
If that money were deposited in federal coffers tomorrow, it would wipe out the deficit for 2014. And every year that Congress dithers on a crackdown, America is forfeiting an approximate $90 billion in revenue.
The Times said pass-through entities, like master limited partnerships, are also being exploited by corporations because they allow profits to be passed to shareholders, making them exempt from corporate income taxes.
It’s commonplace to hear corporations and businesses complaining that at 35 percent, the U.S. has the highest corporate tax rate in the world. That statement is true. But in reality, most corporations don’t pay anything close to 35 percent. In fact, “by taking advantage of a warren of credits, deductions and exemptions, corporations pay an average effective rate of just 12.6 percent, according to the Government Accountability Office,” the Times said.
Money Talks News finance expert Stacy Johnson recently prepared a video about that.
The most obvious way to deal with this issue is to overhaul the corporate tax code. Unfortunately, political gridlock makes that all but impossible.
Jared Bernstein, former top economic adviser to Vice President Joe Biden, told Rolling Stone that corporate tax breaks won’t change until a lot of politics are realigned, leading Dickinson to write:
Until that day comes, we’ll be living with the tax policy that multinational corporations have bought and paid for. Which means that you and I are stuck with the bills.
Are you surprised that corporate taxes make up just 10 percent of government revenue, as opposed to the 30 percent they used to comprise? Share your comments below or on our Facebook page.