Streams

How Big Businesses Evade Taxes, Costing the Rest of Us Money

Thursday, July 17, 2014

Allan Sloan, Senior Editor at Large for Fortune magazine, explains why a growing number of American companies have been dodging U.S. taxes by reincorporating overseas. He looks at what it means for business, the economy, and for the taxpayers left behind. His article “Positively Un-American” is the cover story for the July 21, 2014, issue of Fortune.

 

Guests:

Allan Sloan

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Comments [27]

Peter Capek from Ossining, NY

If we had a functional Congress, I'd suggest that it should help corporations do the right thing by making it illegal and not merely unpatriotic to avoid US taxes on their US operations. There really needs to be more similarity between the way corporations that operate in the US are taxed, and the way people living in the US are taxed. I refer to AMT-like effects which bypass many deductions and (attempt to) assure a minimum rate of tax payment. Similarly US citizens abroad for a few years are treated much worse than corporations who move their tax jurisdiction abroad; this should be rectified.

But the inescapable conclusion, for me, is that money in politics buys favoritism, and corporations apply money where it has the highest leverage: Washington. Or did a past Congress write such silly tax laws as are now being exploited without even being paid for them? I doubt it.

Jul. 18 2014 04:43 PM
Max from Northern NJ

(1) The US Supreme Court has ruled that taxpayers, which include residents, citizens, and entities, have the right to structure their finances to minimize tax liability.

(2) Taxes are a game for governments. It is quite possible and fairly common to have to pay tax on income one never has. Capital loss carry-over, for example, is not permitted in New Jersey; nor is capital loss offset in categories (rather narrowly defined in NJ) other than the one in which they are incurred, and exercised stock options, when the underlying stock is not immediately sold, can end up being taxed for more than the shares are worth, meaning, because of taxes, one would be better off never having had the options at all.

The 73,608 pages of the United States Tax Code are Byzantine, overly complicated, arcane, and extremely ambiguous, with staggering compliance costs. "FY02, the budget of the IRS was nearly $10 billion. However, these costs represent only a small fraction of the total cost of administering the tax system. The costs in terms of time and money that citizens incur in order to comply with tax laws and regulations far exceed the budget of the IRS." [http://www.irs.gov/pub/irs-soi/toder.pdf]

If you think it is unpatriotic to minimize your tax liability and you consider yourself patriotic, please send your contribution to lower the National Debt "online either by credit card, checking or savings account at Pay.gov

You can write a check payable to the Bureau of the Fiscal Service, and in the memo section, notate that it's a Gift to reduce the Debt Held by the Public. Mail your check to:

Attn Dept G
Bureau of the Fiscal Service
P. O. Box 2188
Parkersburg, WV 26106-2188

[http://www.treasurydirect.gov/govt/resources/faq/faq_publicdebt.htm]

Jul. 18 2014 12:22 AM
Peter Capek from Ossining, NY

If we had a functional Congress, I'd suggest that it should help corporations do the right thing by making it illegal and not merely unpatriotic to avoid US taxes on their US operations. There really needs to be more similarity between the way corporations that operate in the US are taxed, and the way people living in the US are taxed. I refer to AMT-like effects which bypass many deductions and (attempt to) assure a minimum rate of tax payment. Similarly US citizens abroad for a few years are treated much worse than corporations who move their tax jurisdiction abroad; this should be rectified.

But the inescapable conclusion, for me, is that money in politics buys favoritism, and corporations apply money where it has the highest leverage: Washington. Or did a past Congress write such silly tax laws as are now being exploited without even being paid for them? I doubt it.

Jul. 17 2014 07:03 PM

(UAE's corporate tax rate is 55%)

Jul. 17 2014 01:21 PM
PETER BROWNSCOMBE from East Village

Another example of the Vidkun Quisling school of business management.

Jul. 17 2014 12:40 PM
BK from Hoboken

@DrG
Our corporate tax rate of 35% is a joke. The GAO says this is nowhere close to the effective tax rate:
http://money.cnn.com/2013/07/01/news/economy/corporate-tax-rate/
You mention AMT. Too bad that I don't have the lobbyists that these companies have to effect loopholes in tax legislation. The personal AMT costs me $10-20K per year with no way around it. If corporations can be people per the Supreme Court to get new rights, can I become a corporation so that I can cut my tax by 2/3 like corporate america does?!

Jul. 17 2014 12:39 PM

THE US HAS HIGH TAXES BUT ALSO SO MANY DEDUCTIONS THAT "TAXABLE INCOME" IS A STRAW MAN.

Explain it to him Leonard, I'm sure you know this.

Jul. 17 2014 12:37 PM
Drew from upstate

"The thing that died in the House"

Democracy?

Jul. 17 2014 12:37 PM
steve b from Morristown

This conversation is completely devoid of any logic and is bordering on silly. The actions these corporations are taking are completely legal and economically rational. Will Mr. Sloan be paying more taxes than he owes this year? If so many corporations are doing this you might want to consider the idea that there is a more fundamental problem than "unpatriotic" companies.

Jul. 17 2014 12:36 PM
Bob from Westchester

Please ask Mr. Sloan if a move to taxing corporations on worldwide profits, rather than just those "earned" in the U.S. under current rules, would take away the incentive to reincorporate overseas. Thanks.

Jul. 17 2014 12:33 PM

If you try to correct problems caused by the higher than optimum tax rates, by restricting business structures and capital flows, you will further cripple the economy. See all the banana republics and socialist countries that tried this in the past. They now all have lower corporate tax rates than the US.

Jul. 17 2014 12:32 PM
James from GV

Actually it was Halliburton that moved to UAE. Was the former VP involved?

Jul. 17 2014 12:30 PM

@ CaptainDrG

1. Japan, Germany, UAE, Luxenburg, Curacao, Denmark, and Belgium all have corporate tax rates 33%-55% accdg to tax consultancy KPMG

http://www.kpmg.com/global/en/services/tax/tax-tools-and-resources/pages/corporate-tax-rates-table.aspx

2. The US has massive loopholes that enable companies to claim barely any profits, and to expense outrageous items. For example, pharmaceutical companies spend hundreds of millions each year fighting to keep their expired patents from hitting the free markets -- all tax deductible. Another example is the millions and billions banks like Citi and Bank of America pay out in fines -- also deductible.

Jul. 17 2014 12:29 PM
Joseph Bell from Downtown

Walgreens and pharmaceutical companies get huge chunks of revenue from Medicare, Medicaid and in case of pharmaceutical cos, from research and development incentives. Why should foreign companies benefit at all from American tax monies?

Jul. 17 2014 12:29 PM
Bob from Westchester

Leonard: Please be more accurate - the companies are changing their jurisdiction of incorporation, not necessarily the physical location of their headquarters. For example, most U.S. companies are incorporated in Delaware, but few actually have their HQ offices there. So the CEOs will not even have to move -- they can stay in the U.S. and enjoy all the lifestyle benefits, security, etc. while their companies pay the foreign tax rates.

Jul. 17 2014 12:26 PM
Benigno Veraz from Washington Heights, NYC

Who (and who should) pay for the protection of US corporations (and other interests) overseas? Why should I, where corporations don't? Why should we go to war and die for a corporation that seeks ways to avoid paying taxes?

Jul. 17 2014 12:26 PM

This is a very frustrating interview. Every complicated question gets some flip version of "I don't know" and otherwise, he just seems to have an ax to grind. Sloan doesn't have much of a case to make beyond "it's just un-American." Perhaps it is, but the point is unproven and irrelevant.

More important and in fact -- this is a very complicated topic and corporations pay taxes in many different ways and to a variety of taxing authorities. US employees pay income taxes. Shareholders pay capital gains. Local sales taxes are paid on materials and equipment. Companies pay property taxes on properties owned. Etc. etc.

In addition to Captain DrG's important points about why companies expatriate, another matter to remember is that it's the corporation's mission to maximize income and profits and minimize expenses. Moving profits offshore is another way to do this.

Jul. 17 2014 12:25 PM
James Doran from GV

Didn't VP Cheney move Blackwater to the uAE?
James
Greenwich Village

Jul. 17 2014 12:24 PM

Also, the big issue right now among expats is that the US is taxing their pay even though they are not earning in US or using US services. That's on top of their local taxes.

Jul. 17 2014 12:22 PM
Beth

Is there any list of these corporations...any way to avoid buying their products? (I stopped buying at Amazon few years ago, when I realized that they were aggressively avoiding sales tax collection. Now buying at a local NYC bookstore or at a Barnes & Noble is a habit.) I plan to read Sloan's article after the Lopate show.

Jul. 17 2014 12:22 PM
Beth

Is there any list of these corporations...any way to avoid buying their products? (I stopped buying at Amazon few years ago, when I realized that they were aggressively avoiding sales tax collection. Now buying at a local NYC bookstore or at a Barnes & Noble is a habit.) I plan to read Sloan's article after the Lopate show.

Jul. 17 2014 12:21 PM

what is the angle here? companies set up in foreign lands all the time, in order to "AVOID" not EVADE tax.

As we sit here, this is what 100s of thousands of smart and well compensated tax consultants and attorneys all over the globe are doing.

US companies from GE to Apple also establish foreign HQs as required by the countries in which they are earning their profits. They can get the money back to the US via arbitrage, like Montasanto China uses its seed profits to buy shrimp, then sell the shrimp to a Montanto backed US trader, who resells it to US wholesalers.

Can your fancy voiced expert speak to specific US benefits that are being abused (US backed Loan Guarantees should be eliminated for starters, along with governmental advocacy for non-US based US companies) and name some names!

Jul. 17 2014 12:21 PM
Amy from Manhattan

Mr. Sloan used the word "citizen." (OK, I don't remember exactly *how* he used it.) In US law, corporations have legal "personhood." Are they ways in which they have some kind of legal citizenship? If so, how does that fit in to this discussion?

Jul. 17 2014 12:19 PM

The marginal federal corporate income tax rate on the highest income bracket of corporations (for 2011, USD 18,333,333 and above) is 35%. State and local governments may also impose income taxes ranging from less than 1% to 12%, the top marginal rates averaging approximately 7.5%. A corporation may deduct its state and local income tax expense when computing its federal taxable income, generally resulting in a net effective rate of approximately 40%. The effective rate may vary significantly depending on the locality in which a corporation conducts business.
The United States also has a parallel alternative minimum tax (AMT) system, which is generally characterized by a lower tax rate (20%) but a broader tax base.

We have the highest Corporate Profits tax rate in the world.
A great revenue enhancer would be to lower the Corporate Profit tax to a Laffer Curve maximum, to a rate that would make the US a competitive place to realize profits. Recently, even Obama recognized this.
Bringing profits back to the US would help US production, earnings, employment, & pay.

Jul. 17 2014 12:18 PM

Profits are expatriated because we have the world's highest corporate profit tax rates.
This rewards deals that structure profits to be realized in lower corporate profit tax rate jurisdictions, abroad.
So there is less money here to pay US workers.
Some might say this is a stupid way to tax.
The more conspiratorially-minded might say it is part of a war on America's middle class, who, when prosperous, are an obstreperous impediment to would-be tyrants.
Prosperity reduces dependency on governments & politicians.

So why don't US workers just start their own businesses and make things & profits locally?
Regulation of everything by governments and agencies can shut down almost anyone who is so naive as to try.
The regulators are often in the pockets of the big guys you are competing with.

Jul. 17 2014 12:17 PM

attention corporations, the pitchforks are coming. you can only be sleazy and greasy for so long before the peasants want some of the "fat" too.

Jul. 17 2014 12:08 PM

What are the ways consumers punish these "foreign" corporations

Jul. 17 2014 10:34 AM

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