U.S. corporations stashing $2 trillion in profits offshore

According to Huffington Post, corporations are keeping $2 trillion in offshore profits to avoid paying taxes. One of the many ways corporations enrich themselves is by giving money to elected officials who then tailor the tax code to benefit their bottom line. Elected officials of both parties, who are given campaign funds and promises of future lucrative consulting jobs, write laws that allow corporations to stash profits abroad, untaxed. So, corporations get to practice legal tax avoidance.

In Washington, D.C., corporate money is the not-so-secret ingredient in the legislative sausage making process. Rationalized by members of both parties, our money-soaked system ensures Washington works for the wealthy and not for ordinary people.

Offshore corporate income tax deferral

Under our loophole-infested U.S. tax law—specifically, the “offshore corporate income tax deferral”clause—corporations can avoid paying income tax on most of their overseas profits until those funds are brought back to the United States.

A handful of senators and congressmen object to our corporate written tax law. Senator Ron Wyden, one of the few calling for repeal of offshore deferral, aptly refers to the tax code as “a rotten carcass that the special interests feed on.”  I appreciate Senator Wyden’s candor.

The tax evasion problem keeps growing year after year. According to the Huffington Post, from 2008 to 2013, the total amount of corporate profits held offshore increased 93 percent. The amount of untaxed profits corporations are stashing abroad is estimated at $2 trillion. General Electric, Inc. leads the pack with $110 billion stored, who knows where, in the Cayman Islands? Then next is Microsoft with $76.4 billion, Pfizer with $69 billion, Merck with $57.1 billion and Apple with $54.4 billion. And the list goes on. They have plenty of willing tax havens to choose from.

What onerous taxes are these corporations avoiding? Huffington Post reports that the top U.S. corporate income tax rate is 35 percent, “though few multinationals pay anywhere near that thanks to tax-reducing loopholes written into the code in the past 28 years.

Alan Pyke at Think Progress weighs in on corporate tax evasion

These companies face no meaningful negative consequences to stashing trillions from the taxman. When they need to access their offshore cash for investing in production or personnel, they can simply use the untaxed profits as collateral for borrowing from the financial sector. There is no business reason to stop ducking U.S. taxes, so it is up to lawmakers to address the problem.

Pyke reports that many in Congress want to reform tax law, but insist on ways that would be very generous to companies that offshore profits. They would slash the corporate tax rate and/or offer a “tax holiday” for bringing money back to the U.S. But few in Washington are willing to propose an outright end to profit offshoring, also known as “profit shifting.” Without ending the practice entirely, because tax havens have such a low tax rate, even with lowering the tax rate and a tax holiday, the practice will continue. This kind of  “tax reform,” assures campaign funds will keep flowing into Congressmen’s re-election coffers.

The accounting industry helps corporations subvert democracy      

Jerry Alatalo, writing at The Oneness of Humanity, says the accounting industry is complicit in corporate tax evasion. He turns to Finance and Accounting Professor Prem Sikka who describes a “very lucrative global industry” that is having a huge impact on the world’s economy and overall conditions.

Professor Sikka points out that . . . “Financial engineering” is not taught at universities anywhere, but is the first item on the agenda for newly hired, freshly pressed accounting graduates at the Big Four—Ernst and Young, KPMG, Deloitte, and Price Waterhouse Cooper. Financial engineering is the focus of new hires’ initial training workshops, and is all about creating, selling, and implementing off-the-shelf tax avoidance evasion schemes for, and to, high net worth clients.

Taxes are not a “cost” to be minimized.

Alatalo says, because of his views, Professor Sikka is a renegade in the accounting world. He holds the idea that taxes—from the vantage point of everyone paying their fair share—are not a “cost” like raw materials used in the manufacturing process, wages paid to employees, office supplies, etc. Sikka points out that, “bending the rules, at any cost, to increase profits is now seen as an entrepreneurial skill.” From Alatalo’s post:

[Sikka] shared a statement by one of the Big Four, “our profitability rests on the ability of our employees to serve clients well.” There is no mention at all about the public interest. The professor recounts a debate he had with a manager from Price Waterhouse Cooper where his debate opponent finally says, “ . . . we create tremendous revenues for the state, and we have very many satisfied clients. Professor, what is your problem?” The professor responded with, “ . . . that is the language of drug pushers and pimps.”

The public cost of corporate tax evasion Alatalo reports:

The United Kingdom could be losing 30-150 billion, the European Union one trillion, and the U.S. Treasury 345-500 billion, maybe more. Developing countries’ revenue losses from tax evasion could be in the range of 500 billion per year—while total foreign aid is around 120 billion dollars.

Those figures are per year. What would the world be like if, year after year, that $2 trillion or so in unpaid taxes around the world was used for the public good?