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Real Patriots Pay Taxes

July 18th, 2011

“Real patriots pay their fair share of taxes. They don’t run out on the bill,” write Scott Klinger and Holly Sklar
Pile of Money

Nick Ares/Flickr*

Some of our nation’s biggest corporations are planning a tax holiday and they want you to pick up the tab.

Actually, you already pay for their routine tax avoidance through the use of tax havens in Bermuda, the Cayman Islands and elsewhere. These accounting acrobatics cost the U.S. Treasury $100 billion a year. Now they want Congress to pass a special tax holiday for money they “repatriate” back to the United States.

There’s nothing patriotic about this repatriation being pushed by Google, Cisco, Pfizer and other companies in the Win America campaign. To sell the tax holiday, they claim it will produce a burst of jobs and investment. In fact, Congress passed a “one-time-only” tax holiday in 2004 with similar promises. Instead, it produced a burst of shareholder dividends and stock buybacks, which goosed the pay of CEOs.

Corporations laid off workers and shifted even more income and investment to offshore tax havens in the wake of the 2004 tax holiday.

“Why should we reward firms for successfully gaming the tax system when we in turn are called on to make up the missing tax revenues?” Edward Kleinbard, former chief of staff of Congress’s Joint Committee on Taxation, told Bloomberg. “Much of these earnings overseas are reaped from an enormous shell game: Firms move their taxable income from the U.S. and other major economies – where their customers and key employees are in reality located – to tax havens.”

A favorite accounting trick is transferring a patent from the U.S. parent company to a subsidiary – often a shell company – in a tax haven. Profits from the patent go largely untaxed offshore while the costs of development, marketing and management remain in the U.S. where they are taken as tax deductions.

Pfizer was the largest beneficiary of the last tax holiday, bringing $37 billion back to the United States and paying just $1.7 billion in federal corporate income taxes. It laid off 10,000 American workers in the following months. The U.S. is the world’s most profitable drug market and yet over the last three years, Pfizer – maker of Lipitor, Viagra and much more – has reported $7.9 billion in U.S. losses while claiming $37.8 billion in profits in the rest of the world. Pfizer, like the rest of Big Pharma, is heavily subsidized by taxpayer-funded research at the National Institutes of Health and elsewhere. It should not be rewarded with another tax holiday.

Bloomberg reported that Win America member “Google reduced its income taxes by $3.1 billion over three years by shifting income to Ireland, then the Netherlands, and ultimately to Bermuda.” What a corporate ingrate. Google would not exist without the Internet, and the Internet grew out of U.S. government research beginning in the 1960s. In the 1990s, the U.S. National Science Foundation (NSF) funded the Digital Library Initiative research at Stanford University that Larry Page and Sergey Brin, now billionaires, developed into Google. Brin was also supported by an NSF Graduate Student Fellowship.

Increasingly, U.S. multinational corporations want to benefit from government spending on education, infrastructure, research, health care and so on without paying for it. Today, large corporations pay, on average, 18 percent of their profits in federal income taxes and as a group contribute just 9 percent toward federal government bills – down from 32 percent in 1952. The Congressional Joint Committee on Taxation says a new tax holiday would cost $79 billion.

A dozen national and state business organizations led by Business for Shared Prosperity recently wrote members of Congress urging them to oppose the tax holiday. The letter said, “When powerful large U.S. corporations avoid their fair share of taxes, they undermine U.S. competitiveness, contribute to the national debt and shift more of the tax burden to domestic businesses, especially small businesses that create most of the new jobs.”

There is no excuse for repeating a policy that’s a proven failure. It would be even worse this time around, as corporations would redouble their efforts to shift profits overseas in anticipation of the next tax holiday. Congress should close the tax loopholes that reward companies for transferring U.S. profits, jobs and investment abroad – not encourage them.

Real patriots pay their fair share of taxes. They don’t run out on the bill.

Copyright 2011 Scott Klinger and Holly Sklar, Business for Shared Prosperity. Op-Ed Syndicated by the American Forum.

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Written by Holly Sklar

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