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Supports to a bridge crumble in Iowa City, Iowa, in a photo taken on September 15, 2014. The long-deteriorating infrastructure of the United States is repaired and maintained with tax funds, much of which are currently being withheld in offshore accounts by large corporations long-overdue in paying their share. (Photo: Phil Roeder)
The old saying goes that there are two things certain in life: death and taxes. But do taxes actually apply to the rich and powerful?
US corporations enjoy US infrastructure, talent and other resources, but they're not giving back financially. Over the last 50 years, the corporate share of federal revenues has dropped from a high of almost 40 percent in 1943 to less than 9 percent today. And while corporations pay less, ordinary Americans are called upon to make up the difference. Individual income taxes will account for nearly 49 percent of all federal revenues in 2016. If you add payroll taxes, individual taxes will make up more than 80 percent of US government revenues this year.
The US tax code is riddled with tax breaks and loopholes that cost the US Treasury more than $1 trillion every year -- as much as the entire federal discretionary budget. And those are just the breaks that are on the books -- this figure doesn't even include tax-dodging practices, such as keeping profits offshore.
The recently released Panama Papers, a giant leak of 11.5 million financial and legal documents from Panamanian law firm Mossack Fonseca, have brought the world's pervasive tax avoidance problems into the spotlight in recent weeks. The leak reveals the ways in which some of the world's most powerful people -- political leaders, celebrities and members of organized crime networks -- have used offshore bank accounts and shell companies in order to dodge their tax responsibilities.
Fortunate 500 companies are avoiding nearly $700 billion in US federal income taxes by keeping $2.4 trillion in profits offshore.
While this major leak has placed global tax dodging in a new spotlight, the abuse of offshore tax havens has been incredibly prevalent in the United States for years. A recent report by Citizens for Tax Justice shows that Fortunate 500 companies, such as Bank of America, American Express, Microsoft and others, are avoiding nearly $700 billion in US federal income taxes by keeping $2.4 trillion in profits offshore. Another study estimates that the annual cost of US companies shifting their profits to offshore tax havens is as much as $111 billion each year. And state and local governments are losing out on income, too.
If $700 billion sounds like a lot of money, that's because it is. This loss of revenue prevents necessary investment in domestic programs Americans say they care about: education, infrastructure, jobs, the social safety net and more.
So why do corporations dodge taxes? Well, corporations and the wealthy often cite high US tax rates as the reason for their exploitation of the myriad loopholes available to them in the tax code, and for keeping profits offshore. But while the United States has an official corporate tax rate of 35 percent, rarely does any corporation pay that amount. The US is actually one of the least taxed among wealthy countries. One US Government Accountability Office report estimates that after taking advantage of the myriad tax breaks and loopholes available to them, corporations end up paying much less -- about 13 percent. Likewise, the richest 1 percent of Americans pay a tax rate of about 34 percent for federal, state and local income taxes, which is not much higher than what those in the bottom 99 percent pay -- about 30 percent.
As the Panama Papers are making clear, tax evasion is a global problem that contributes to inequality on a grand scale. And it's clear the United States' ailing tax code works for corporations and the wealthy in order to maximize profits at the expense of ordinary Americans. Yet, over and over, lawmakers focus on spending cuts to programs that Americans care about and ignore how the tax code could be a part of the problem. It seems that, if corporations and the wealthy continue to exploit tax breaks and loopholes -- and if lawmakers continue to do little to rein them in -- ordinary Americans will continue to shoulder the burden for government services that benefit us all. And those services will continue to fall short of what we really need. The results? Outrageous student debt. Crumbling roads and infrastructure. Poisoned water.
When investments Americans want and need are competing against one another for limited resources, nobody wins. The United States is the richest nation in the world; it does not make sense that people here must fight over bread crumbs.
Tightened belts affect not only federal education, job training and climate change initiatives, but also programs in state and local governments. States rely on federal dollars for about a quarter or more of their total annual budgets. When the federal budget is cut, those cuts reverberate in states and local communities.
People in the US shouldn't have to choose between a fully funded Head Start program and clean water.
And what happens when states and local communities face financial hardship? The water crisis in Flint, Michigan, is a defining example. Falling tax revenue and budget cuts in Flint led local leaders to make a hasty decision to switch the municipal water source to one that was cheaper. That disastrous decision resulted in the deterioration of water pipes across the area and the poisoning of thousands of its residents, many of whom will experience lifelong side effects.
In a nation of vast resources, there is no reason that a crisis like Flint should ever happen again. And to ensure it doesn't, critical investments are needed.
Meanwhile, income inequality is growing steeply. In 1980, CEO pay was, no doubt, generous: $42 for every $1 workers earned. Yet nowadays, the gap is gargantuan: The AFL-CIO estimates that CEOs earned $373 for every $1 a worker made in 2014. And the 100 largest CEO retirement funds are worth a combined $4.9 billion. That's equal to the entire retirement account savings of more than 50 million American families.
By asking corporations and the wealthy to pay their fair share, just like average Americans do, lawmakers can create a federal budget that works for everyone. Congress must create a more fair and just tax code while ensuring working families have the resources they need to get ahead. People in the United States shouldn't have to choose between a fully funded Head Start program and clean water. And they won't have to if lawmakers make it so.
Shortly after the Panama Papers were released, the Treasury Department put up a major roadblock for US corporations trying to skip out on their tax responsibilities. As a result, a planned merger between US drug company Pfizer and Irish drug firm Allergan was canceled. The merger would have allowed Pfizer to legally move its headquarters overseas, without actually moving so much as a paper clip. Such a move -- when an American corporation "sells" itself to a smaller corporation in a country with a lower corporate tax rate -- is known as an inversion. The Treasury Department's move eliminated most of the tax benefit Pfizer was hoping to gain by an inversion and would discourage future similar mergers by making them less profitable.
While the Treasury targeting inversions is a start, the burden is on lawmakers to pass legislation to close loopholes and prevent corporations and the wealthy from dodging their US tax responsibilities for good.
President Obama has already called on Congress to adopt policies that would eliminate tax breaks and loopholes for the wealthy and corporations. But given the increasingly polarized and gridlocked Congress, can lawmakers come together to find common-sense solutions to this incredibly pervasive problem?
Tax dodging is just one symptom of a larger issue: a severely broken tax code. Though lawmakers spend an incredible amount of time bickering over how to spend federal dollars, they pay virtually no attention to how those dollars come in. Smart budgeting means not only focusing on stretching dollars as far as they can go, but also creating revenue streams that pay for the investments the nation desperately needs.
One thing is clear: Corporations and the wealthy dodging their taxes means less money to spend on things people in the United States want and need. The tax code hasn't been working for a long time -- it's time for lawmakers to make a change.
JASMINE TUCKER
Jasmine Tucker is the research analyst at the National Priorities Project (NPP), where she plays a leading role in NPP's research effort. Her research interests include federal spending and tax policy, social insurance safety net programs, and military spending. Jasmine has been interviewed and cited for her research on the federal budget, social insurance and safety net programs, tax policy, and more by local and national media, including MSNBC, The Wall Street Journal, Investment News, the Los Angeles Times and NPR.
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