Corporate Tax Avoidance

May 27, 2013

Some of the largest corporations making the most profits selling products in the United States are able to shelter the vast bulk of their income from taxes here. Last week, a panel in the US Senate investigated how Apple managed to use corporate tax loopholes to avoid billions of dollars in taxes by offshoring profits to subsidiaries in countries such as Ireland which tax at rates as low as 2%. Although the corporate tax rate of 35% in the United States is one of the highest in the world, the effective tax rate actually paid fell from 42,5% in 1960 to 17.8% in 2012. Some of the more profitable firms have done much better than that, paying rates less than 10%, none at all or even paying negative tax rates.

It is important to note that many companies sell products produced by labor in factories moved to or subcontracted to other companies in foreign countries with lower wages and often under working conditions that would be impermissible in this country. Apple and other electronic manufacturers’ use of Foxconn in China was a prominent case in point in the news last year. Garment factories with poor safety resulting in disasters in Bangladesh producing goods for sale at Wal-Mart and other major retailers in the US are another example. Large multinational corporations often take advantage of cheap labor in poor countries to produce items for sale at tremendous profits in relatively rich countries. They often get away with it because these facts are not widely know among the people buying the products.

The economies in none of the countries are really improved. Money is siphoned off from the economies where the goods are sold in the form of corporate profits to the corporate or individual tax havens with no intent to repatriate it in the form of investment or taxes in the countries where the profits were made. Workers in all the countries are competing with each other for a lower overall standard of living. Manufacturing jobs are created at lower wages and under less safe working conditions to be sold to consumers halfway around the world at lower prices than they could be sold for if produced closer to home under more humane circumstances. Good paying jobs in manufacturing here are replaced by lower paying service sector jobs or not at all.

Countries are encouraged to lower standards by decreasing corporate taxes, wages, safety and environmental regulations in order to compete for capital with other nations. So called “Free Trade Agreements” are used to codify and facilitate the process. Capital and profits are thus able to move more freely about the world and accumulate without regard for the effects of such activities on the vast majority of the people in all nations, rich and poor. National and local governments become more limited in their ability to look after the interests of the people under their governance in favor of lessening restrictions on the activities of the corporations operating within their borders. People in corporate board rooms come to have more say in how people thousands of miles away are treated than their own elected governments. Capitalists corporations and their money do not respect borders. Any policy or law that makes it more difficult for them to increase their bottom line is to be avoided or alleviated if at all possible.

Our tax dollars are used to provide military stability, education, infrastructure and other elements without which the creation of such profits would be far riskier and more difficult. The main beneficiaries of such policies are the large multinational corporations and those who control them. Companies complain they cannot find qualified workers to perform highly skilled jobs, yet refuse to pay anything for their education. The tax laws, in this country and others across the globe, have been written in such a way as to provide for an increasing degree of inequality between the growing and most prosperous corporations and those who produce the actual goods and services that they profit from so highly.

This country has long prided itself on its entrepreneurial spirit and the strength of the small businesses that create the vast majority of jobs, goods and services available here. Conservatives praise these values of free enterprise and talk of making conditions more conducive for small business owners to thrive, while at the same time making it easier, through tax loopholes and economic policies for small business owners to be overwhelmed and have their businesses swallowed up by the large corporations. A locally owned small business is unable to relocate its profits to an offshore tax have like an Apple, a GE, a Mitt Romney or some other mega-millionaire can.

Government with the main purpose of increasing the bottom lines of huge corporations and maintaining or strengthening their grip over the global economy has proven to be a very bad proposition in terms of the welfare of the vast majority of inhabitants of the planet, human and otherwise. Corporations which have gained huge profits by exploiting the labor and/or buying power of a people should be required to give back more of the proceeds than they seem likely to do voluntarily. People have to pay taxes because their governments are powerful enough to make them do so. If the people are the government, they should be able to convince the corporations to treat them better than they are now. If the corporations ARE the government, we are all in trouble.

Policies that allow corporations to evade taxes and increase profits at the expense of harming the living standards of the rest of us are unacceptable. Tax policies in this country that encourage corporations to lower the living standards of most of the world population so they can accumulate more wealth and power must stop. Corporations and trade laws must be made compatible with a sustainable lifestyle for all inhabitants of the planet. The people need to be in charge of their own governance. National governments are being turned into pawns in a global chess game being run currently largely by the masters of the huge corporations. We must regain more of a balance between individual and corporate rights for our society to be its most productive and humane. Closing corporate tax loopholes, as well as those for the wealthy scions of industry, will allow us to more equitably finance our governments so as to better provide the goods and services required for each of us to not only survive, but to thrive, now and in the future.