The Pardu

The Pardu
Watchful eyes and ears feed the brain, thus nourishing the brain cells.

Friday, August 8, 2014

Connect The Dots USA: Corporate Tax Dogers



On August 7th 2014, I published a piece related to President Obama's position on corporate entities that deploy strategy involving moving their corporate offices (with all key employees and administration) to overseas locations. "Corporate Inversion," as  a typical example of American capitalism is factually despicable and existentially unfair. As Obama stated in "they are gaming the system." Not only is the practice deeply unfair, the strategy also reduces US jobs. Do you think corporate headquarters in foreign locations will lead to job offers for the thousands who work in various management and administrative roles?  No, those jobs will go to English speaking foreign workers from local labor markets.


Yet, Mitt Romney thinks, "corporations are people my friend." 


A paradigm not unfamiliar for an elitist who has earned a quarter billion via venture capital "corporate takeover" and resell of operations. Resell of operations inherently means consolidation of operations and mass reduction in acquired company employees. As we all know, "To the victors go the spoils." Romney's "corporations are people" is as insanely insensitive as his Boca Raton "47%" solicitation from very wealthy dinner guests.

Most large US corporations compensate their CEO's at obscene and opulent levels, while compensating employees in a highly disproportionate level. A quick look at three top US corporations with operations in a middle-sized central US city (Cincinnati), provides a clear picture of how "they" earn and how "we" earn. The disparity is stark and yes obscene.

Ah, but the CEO is so integral to the success of the corporation!  Alas, a reality that perpetuates decisions to flee the Nation for tax futile oversea locations.  If you are not aware corporate taxes (paid to governments) is a key area of corporate strategy and planning you should do a bit of reading. The CEO has at this (Most are men) disposal corporate tax lawyers who run rings around federal tax lawyers and they have the advantage of political indifference. Factually, the CEO has a political party (the GOP including Libertarians) who has a mission of tax reduction as the key strategy for developing a healthy economy. The mission is flawed based on both empirical study and via experience (See Trickle-down/Supply Side Reaganomics). Perpetual cutting taxes as key to federal austerity measures has proven to be an oasis-like failure. It is frankly, analogous to seeking a "compassionate" conservative in a world where none ever existed. 

Yet, the CEO continues to charge his strategic planners with strategy to increase corporate profitability. Connect The Dots has published a couple of graphics that delineate the fallacy and ridiculousness of corporate tax dodging.

Read more after the break below


Rather than tinker with the Connect graphic with an added highlighter, allow me to refer you to a key point in US tax history. Locate the late 1970s and early 1980s on the graphic and then look straight up. The red line dips exponentially; the gold and light blue lines separate in the opposite direction. The separation almost reminds of Rand Paul distancing himself from the visuals and prospect of comment regarding the two DREAMers who accosted Rep. Steve King (last week).



Returning to our discussion of the Federal Budget… We already looked at the best place to cut spending — the bloated Military budget. Now let’s talk about the other tool in our deficit-cutting toolbox — raising revenue. That’s the one the Teapublicans never want to talk about it.  
As we can see from this graph, the red line shows that corporations used to pay a much larger portion of total revenues — back in the mid 1940s, it was 40% of total revenue. Today it’s only 10%, and was recently as low as 6%. Measured as a percent of the total economy, corporate taxes added up to 7% of Gross Domestic Product (GDP). Today it’s a meager 1.6% of GDP or $274 Billion. Remember, GDP is currently about $17 Trillion, so each 1% equals $170 Billion. When corporations don’t pay their fair share, the rest of us have to make up the difference or the deficit increases. 
Meanwhile, individual income taxes (the yellow line) hovers around 40% to 50% of total revenue and payroll (FICA) taxes (the green line) are a steadily increasing percentage. Remember, payroll taxes are specifically used to fund Social Security and Medicare Part A (Hospital Portion only). Who pays the largest percent of their income in payroll taxes? Well, as the late billionaire hotelier Leona Helmsley would say, “little people,” of course.

Another graphic display from Connect The Dots. 


                               August 8 
The declining revenue share paid by corporations is certainly not because they haven’t been profitable. On the contrary, since 2010 we’ve seen all-time highs for corporate profits. In 2013, corporations raked in 10% of GDP in after-tax profits, which equals about $1.7 Trillion. 

But corporations only paid an average effective tax rate of 20% of their profits — well below the statutory 35% federal corporate rate (39% including state and local taxes) and far below the four decade high of 50%. 
Much of this lost revenue is due to clever tax avoidance schemes in which corporations exploit loopholes that they themselves have lobbied to insert and keep in the tax code. 
One tax evasion gimmick corporations use is to keep profits abroad because, unlike other countries, our tax code stupidly waits to tax profits when they are brought home. There is now an estimated $1.6 to $2 Trillion in profits being stashed overseas — costing Americans $560 to $700 Billion in lost revenue. 

Then the tax deserters lobby for another “repatriation tax holiday” to bring the profits back at a meager 5% tax with the false promise of creating lots and lots of jobs. Instead, they boost executive pay, shareholder dividends and buy back their own stock to inflate the share price. We already fell for that ploy in 2004. Fool me once… Rather, we should change our tax code to tax any corporate profits as they are earned in the U.S., with penalties for shifting it abroad. 
Most recently, Walgreens backed down under public pressure to abandon its “inversion” (perversion!) scheme in which it planned to buy up a small Swiss company and then change its address to Switzerland to avoid paying estimated U.S. taxes of $4 Billion over the next 5 years. Of course, Walgreens would still be on every other street corner in America, using our roads and legal system, depending on our workforce and customer base, and getting 25% of its revenue from taxpayer-funded programs like Medicare and Medicaid. It just wouldn’t be paying its fair share of taxes anymore. What an ungrateful, unpatriotic taker!

While Congress drags its feet on reining in these tax dodgers, you can demand that the President sign an executive order to prevent corporations from deserting America through the inversion perversion:
The following graphic does not relate specifically to tax dodging corporations, but provides a bit of additional information for people who absorb information to support good decision-making that ward-off GOP political manipulation. 


View image on Twitter


"Corporate Inversion" is an extreme manifestation of corporate greed and insensitivity to the needs of our nation. GOP fiscal strategy of unequal tax policy is equally disproportionate and no one in the GOP will address "corporate inversion."


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