If Mitt Romney won't tell you about these tax loopholes, we will

If Mitt Romney won't tell you about these tax loopholes, we will
Justin Renteria

A year ago, Citizens for Tax Justice, a Washington, D.C., nonprofit, studied the tax returns of 280 corporations. What the group found was a Beltway version of a Mafia protection scheme.

From 2008 to 2010, at least thirty Fortune 500 companies — including PepsiCo, Verizon, Wells Fargo and DuPont — paid more for lobbyists than they did in taxes. They collectively spent $476 million sucking up to Congress, buying protection for tax breaks, loopholes and special subsidies.

It didn't matter that these same thirty firms brought home a staggering $164 billion in profit during that three-year period. They not only managed to avoid paying taxes; they actually received $10.6 billion in rebates.

U.S. Rep. Dave Camp (R-Michigan) has taken huge contributions from the financial sector. What did they get in return? Camp blocked legislation reforming the capital gains tax rates.
Michael Jolley/Creative Commons
U.S. Rep. Dave Camp (R-Michigan) has taken huge contributions from the financial sector. What did they get in return? Camp blocked legislation reforming the capital gains tax rates.
Sheryl Crow benefited to the tune of $2 million on a loophole put in place by Tennessee, Kentucky and Texas lawmakers.
Kevin W. Burkett/Creative Commons
Sheryl Crow benefited to the tune of $2 million on a loophole put in place by Tennessee, Kentucky and Texas lawmakers.

Welcome to the U.S. tax code, where companies like General Electric and Boeing contribute less to the federal treasury than a retired machinist living in Florida.

Defenders of the system argue that most deductions don't go to large corporations. That's true. By pure dollars, the lion's share go for mortgage interest, employer-paid health insurance, retirement plans and Medicare benefits.

The difference is that these tend to benefit everyone. They're designed for the greater good, reinforcing the pillars of self-determination: home ownership, savings and health care.

But there's another part of the tax code in which 99 percent of America is barred from entry. It's where Congress sells loopholes and subsidies to those with the wallets to pay. They not only screw the rest of the country — which is forced to cover the tab — but turn any notion of a free market into situational comedy.

Even for companies within the same industry, the disparities are alarming. From 2008 to 2010, UPS paid a tax rate of 24 percent. Rival FedEx paid less than 1 percent.

Monsanto managed to pay 22 percent — well below the supposed corporate rate of 35 percent. But that's nothing compared to DuPont, which received a $72 million rebate — despite profits of $2.1 billion.

This sleight-of-hand even extends to retail. While Nordstrom paid 37 percent in taxes, Macy's rate is just 12.

You don't need a Wharton MBA to see how damaging this is to the nation's financial health. Big companies are given incentive to lard up on lobbyists, accountants and lawyers rather than use that money to improve products and services. And while small businesses may collectively be our largest and most stable employer, we've rigged the game against them, since they can't afford to buy congressmen of their own.

"The tax code is a mess," says Congressman Chris Van Hollen (D-Maryland). "I support tax reform, but not reform that's simply a Trojan horse for giving another round of windfall tax breaks to the very wealthy."

And that's the problem. President Obama and the Democrats have railed for years over this brand of favoritism, only to cave like the French army at the first whiff of resistance.

Republicans are worse, prattling on about free markets while protecting just about any market-distorting loophole if the money's right. Mitt Romney, the poster child of off-shore tax schemes during his time at Bain Capital, claims he has a plan to close loopholes. He just refuses to say how he'll do it.

But if you're not being bought with weekend golf retreats at Augusta National, it's easy to find giveaways we all can agree must end. Introducing the ten most corrupt breaks, designed to do nothing but pervert America's economic strength:

10. I'm Irish. No, really

Apple Inc. may have made Silicon Valley famous, but it prefers to let someone else pick up the check for Northern California's freeways, bridges and airports.

How? By pretending to be Irish.

In the late 1980s, Apple decided that Ireland's 12.5 percent corporate tax rate was a much more comely figure than America's 35. But Steve Jobs didn't want to move to Dublin. Fortunately, Congress allowed him to fake it.

Apple created an Irish subsidiary. Then, with a flourish of paperwork, it transferred its most valuable assets — its patents — to Ireland, comically forcing its U.S. headquarters to pay leasing fees for its own inventions.

Nothing had actually changed in the way the company operated. Apple simply had new paperwork saying it was partial to warm beer and fiddles, allowing it to dodge a substantial part of its U.S. tax bill.

But that wasn't the end of the scam. The Irish subsidiary is partially owned by another company, Baldwin Holdings, which doesn't even publicly list an office address or a phone number. But it does have paperwork saying it's headquartered in the Virgin Islands, where it can stockpile its income tax-free, outside the reach of the IRS.

Most people associate such exhaustive money laundering with drug cartels. But it's now standard practice at firms like Eli Lilly, Google, Microsoft, Pfizer and Facebook. The only difference is that when drug dealers do it, the government shows up with Kevlar and automatic weapons instead of a refund check.

Congress, meanwhile, is paid to look the other way, leaving the federal treasury to serial molestation by our most prominent citizens.

"The original sin is that we treat a wholly owned subsidiary in the Cayman Islands as if it was an arm's-length separate entity," says Dr. Calvin Johnson, a tax expert at the University of Texas Law School. "A pocket transfer from the U.S. to the Cayman Islands is like a transfer from your left pocket to your right. Any system that treats a Cayman Island subsidiary as if it were a separate entity is just asking to be destroyed."

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10 comments
TruthHurts
TruthHurts

Wow, just wow. What uneducated drivel. Why hasn't Obama told us about these tax loopholes? Just hasn't done a good job of telling the story? We have one of the most progressive tax policies in the world, on average the more one makes, the more taxes they pay. The buffet/secretary line has proven to be incorrect (look up what an effective tax rate is), stop pandering to the lies. #10. If the US corporate tax rate was competitive (ie. lower) corporations wouldn't do this. The same happens when a state with a higher income tax sees citizens move to one with a lower rate. #9. Capital gains are not taxed the same as dividends, maybe do some research. Dividends are taxed lower because as profit (ie. earnings) they are already taxed once at the corporate level. Looks like you forgot to mention that Senior citizens (anyone over 60) are the largest group of citizens dependent on dividends for income, that is why this has not changed and has actually been lowered over time (buying votes). #8. Agreed, that's just nonsense, this shows how corrupt Congress is. #7. While yes, the corporation gets the write-off, the individuals will pay taxes on the capital gains. This money does not just get handed out freely as you infer. #6. Yes, it is absurd Yacht's can be claimed, but there are still restrictions on how much interest can be claimed (both monetary and on only up to 2 homes) and there are habitation restrictions as well. Agreed this is dumb. #5. Agred, end all energy subsidies. Solyndra, A123, wastes of money. Let China do it cheaper and better than America can (as is the case already). #4. "It's not just cheap labor that pushes work overseas. The U.S. tax code allows companies to expense every last cost of sending your job abroad." Wow, thanks for the insight, what a joke you are. There are no tax breaks for shipping jobs overseas, only MUCH cheaper costs vs paying payroll taxes of 20%+ of salary/employee in taxes (Medicare/SS/SUTA/FUTA), not to mention healthcare costs that are rapidly rising. #3. Agreed, this is bullshit. #2. See #10. Maybe more states should follow Delaware's lead to be competitive? Sounds like a lot of whining, especially from the caymen islands. #1. Moving a business to a state willing to work with you, instead of against you is blackmail? Im sure California's higher taxes and pro-union atmosphere had nothing to do with this decision. Typical liberal bullshit, read a book or two Chris, maybe start with the tax code if you're going to pretend to know what you're talking about.

RouseMouse
RouseMouse

We can only assume those off shore companies, that have recently been declared individuals by the supreme court, at their request for political reasons, are paying common personal income tax or the AMT (alternative minimum tax) on their personal income like the rest of the individuals living in the country allowed to use the same forms, and those stating their residence out of the country have the appropriate work visas for their business dealings inside the U.S. like any other individual needs and are no longer able to finance any U.S. election campaigns and are registered as foreign lobbies?

 

Does Apple have a work Visa to do business in the U.S.? and do they have to leave in 3 to 6  months or some time limit like every other foreign individual must comply with?

cowade45
cowade45

So the many years the Democrats had control of both houses and the White House they couldn't have eliminated these loopholes. Sounds like a lot of "Loopholes" in your article. Your bias was definitely on display.

raktmn
raktmn

Unfortunately the only way to get rid of this tax code problem is to get rid of the lobbyists.  The problem is that the 5 Republican-leaning US Supreme Court justices keep ruling over and over (like Citizen's United) that businesses can use unlimited money to influence politicians.  They claim that buying off the government is "free speech".  A claim that is tantamount to claiming that bribery is the same as writing a newspaper.

 

There is no way to solve this problem without getting rid of these Supreme Court justices who derail all legislation designed to remove corporate influence from government.  Once this is solved, only then can the lobbyists be defeated.  Only after the lobbyists have been dealt with can we make meaningful changes to our tax code.  Otherwise we are just playing whack-a-mole trying to eliminated individual tax loopholes, and 100 new loopholes will be added for every 1 loophole that gets public ridicule like the loopholes in this story.

 

Elect people who will fix the Supreme Court, or don't bother complaining about the results...

trollmeat
trollmeat

Romney 2012. The president had 4 years to fix this and he hasn't so whats that really say?

Mary Durocher
Mary Durocher

Great article!! Just wish others could read it without thinking someone must be "lying"....since lying has just become the new "truth"....

cowade45
cowade45

 @trollmeat So the many years the Democrats had control of both houses and the White House they couldn't have eliminated these loopholes. Sounds like a lot of "Loopholes" in this article. Chris Parker's bias was definitely on display.

moreliberalthanjesus
moreliberalthanjesus

 @trollmeat Of course you choose to ignore the many references to Congress trying to close these loopholes, with zero success.  The president can't just change the tax code on a whim.  

 

“If you vote against Obama because he can’t get stuff done, it’s kind of like saying ‘This guy can’t cure cancer. I’m gonna vote for cancer.’”~Chris Rock  

 
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