With passage this week of a budget framework, Republicans in Congress have embarked on a preposterous mission of passing—in three weeks—a tax bill that still hasn’t been released to the public as of this writing. They plan to pass the bill, which is likely to end up near 1,000 pages in length, with only Republican votes.
This dynamic will set off a lobbyist scrum. This is when the rules get fixed to benefit the few, with lies and false promises floated to delude the many. One of the most egregious examples is the tax-repatriation and territoriality provisions, a “reform” that will reward tax avoidance by the big corporations.
Today global corporations are able to avoid paying US taxes by a legal loophole known as deferral. Taxes are deferred on an estimated $2.6 trillion in profits that corporations book as having been earned offshore. Republicans plan to allow “repatriation” of those funds at a deeply discounted tax rate (Trump has suggested 10 percent). “We’ll be bringing back, probably, very close to 100 percent of the money back into our country where it can be put to work, and jobs will be created,” Trump boasted in front of a Pennsylvania crowd of truck drivers. “My Council of Economic Advisers estimates that this change, along with a lower tax rate, will likely give the typical American household a $4,000 pay raise.”
That sounds great, but don’t start checking out vacation spots. Everything about that statement is bunk. For the most part, the money isn’t earned abroad. Tax attorneys and corporate accountants use a blizzard of tax loopholes and dodges to book US-earned profits in subsidiaries located in offshore countries with minimal or no taxes. A recent study by US PIRG and the Institute for Taxation and Economic Policy found that American multinational companies collectively reported 43 percent of their foreign earnings in five small tax haven countries: Bermuda, Ireland, Luxembourg, the Netherlands, and Switzerland. Yet these countries accounted for only 4 percent of the companies’ foreign workforces and just 7 percent of their foreign investments.
Nike, for example, holds offshore for tax purposes $12.2 billion, on which it owes $4.1 billion in US taxes. As the report noted, “Nike likely does this by licensing trademarks for its products to subsidiaries in Bermuda and then essentially charging itself royalties to use those trademarks. The shoe company, which operates 1,142 retail stores throughout the world, does not operate one in Bermuda.”
The money isn’t held abroad. It is invested in global markets, much of it in US Treasuries and stocks. The companies can’t use the money directly for dividends or investments, but they can use the money to get low interest rates for their bonds or loans, and use the borrowed money for dividends or investments, while writing off the interest paid on the loans.