New GAO Report Shows Corporations Enjoyed More Tax Breaks Than They Paid In Corporate Income Taxes
Today, U.S. Congressman Lloyd Doggett (D), a senior member of the House Ways and Means Committee, released a new non-partisan Government Accountability Office (GAO) report that surveys tax expenditures--preferences, deductions, credits and other provisions that permit corporations to reduce the amount that they owe in taxes. The report shows the marked growth in the use of these special provisions since the 1986 tax reform. The GAO report shows that in 2011, at approximately $181.4 billion, the total of these corporate tax loopholes, was actually greater than the total of all corporate income tax payments to the Treasury. The largest corporate-only tax expenditure--deferral of paying tax on income held by overseas subsidiaries--accounted for more than $41 billion in corporate revenue losses or nearly a quarter of the total revenue losses.
"Today, many Americans are paying their federal income taxes to contribute their fair share to the cost of our national security and of vital public services, but much of corporate America is still not doing the same," said Rep. Doggett. "In fact, there are many of America's largest corporations that continue lobbying the Administration and this Congress for another loophole to authorize their paying about a nickel on the dollar in taxes on a significant portion of their earnings." Under such a "repatriation tax holiday," like that they enjoyed in 2004, corporations would owe a mere 5.25% tax on any profits allegedly earned abroad.
To address international corporate tax avoidance, Rep. Doggett has introduced a package of three bills that would close loopholes and ask multinationals to pay a more fair share in federal taxes--the Stop Tax Haven Abuse Act, the International Tax Competitiveness Act, and the Fairness in International Taxation Act.
"Over a three-year period, 30 Fortune 500 companies spent more on lobbying Congress than they paid in taxes to the Treasury. Some of our largest corporations have enjoyed effective rates that are single digits. Corporate America did not contribute a nickel to the fiscal cliff deal that meant higher taxes for many Americans at the beginning of this year. Indeed, that deal gave some corporations major tax cuts. I believe that it is reasonable to ask corporate America to contribute a little more toward closing the budget gap and to the cost of our national security. These three bills represent three steps toward righting some of these inequities and beginning to level the tax playing field for our small businesses," said Rep. Doggett.
The Stop Tax Haven Abuse Act aims to close several different loopholes by deterring the use of tax havens for tax evasion and strengthening the enforcement of our tax laws. One provision would prevent U.S.-run corporations from avoiding U.S. taxes by filing a piece of paper abroad and pretending to be foreign. The bill would also require SEC-registered corporations to report annually on the number of employees, sales, financing, tax obligations, and tax payments on a country-by-country basis, shedding more light on the extent of use of tax havens. This bill also provides for additional penalties for failing to disclose offshore holdings and for promoting abusive tax shelters.
The International Tax Competitiveness Act addresses a large and growing area of tax abuse: the practice of developing a trademark, patent, or copyright in the U.S. and then transferring that intellectual property abroad to avoid taxes on the massive amounts of income generated by it. This bill would treat income from the U.S. intellectual property as U.S. income and tax it accordingly.
The Fairness in International Taxation Act would end the current practice of treaty shopping to avoid U.S. taxes. The United States has tax treaties with a number of trading partners that reduce the amount of taxes that a U.S. based entity owes on interest and royalties paid to a foreign parent. Since many of these foreign parent companies are set up in tax havens, these companies now bypass U.S. tax by routing the payment through a tax-treaty country that then just transfers the funds to the tax-haven parent. This bill would end that legal fiction and say that you only get the tax-treaty discount if the parent company is actually located in a tax-treaty country.
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