I just read two weekend posts by Paul Caron of TaxProf Blog titled GAO: 83% of Largest U.S. Companies Use Offshore Tax Havens; and WSJ: Best Economic Stimulus: A Corporate Tax Rate of Zero.
In the first post, Professor Caron reports that a General Accountability Office (GAO) study indicates that more than 2/3rds of America’s largest corporations have subsidiaries in foreign countries with low tax rates and opaque information disclosure laws:
Eighty-three of the 100 largest publicly traded U.S. corporations in terms of 2007 revenue reported having subsidiaries in jurisdictions listed as tax havens or financial privacy jurisdictions.
Sixty-three of the 100 largest publicly traded U.S. federal contractors in terms of fiscal year 2007 federal contract obligations reported having subsidiaries in such jurisdictions.
The GAO warned readers against making any conclusionary leaps noting that there are many non-tax reasons a U.S. Corporation might choose to do business in a so-called tax haven country:
Since subsidiaries may be established in listed jurisdictions for a variety of non-tax business reasons, the existence of a subsidiary in a jurisdiction listed as a tax haven or financial privacy jurisdiction does not signify that a corporation or federal contractor established that subsidiary for the purpose of reducing its tax burden.
Despite this rather weak caveat, the GAO report clearly implies that U.S. corporations are benefitting from tax loopholes that are unavailable to the average American citizen. So, once again, the GAO feeds the public myth that big business benefits from “corporate welfare.”
A few months ago the GAO came under fire for releasing a report that showed that most U.S. corporations don’t pay any tax at all. That report, too, is misleading because it included in its analysis Subchapter “S” Corporations which are pass-through entities (taxes are paid at the Shareholder level) and, therefore, not required to pay any corporate tax at all.
In the second TaxProf post, Caron quotes an op-ed appearing in the Wall Street Journal that argues that the best way to create more jobs is to eliminate the corporate income tax entirely:
The quickest way to strengthen the credit system and begin the end of this crisis is to get money into the economy for true job creation, and not into government work programs. The way to do this is to slash taxes. The U.S. corporate tax rate, currently the highest in the world, should be cut to 0% (corporate income would still be taxed, of course, when distributed to shareholders as dividends).
If it is true, as the GAO study implies, that U.S. corporations have operations in tax haven countries because they want to save taxes, then that fact supports the WSJ argument that eliminating corporate taxes would bring jobs back home.
Clearly, a zero corporate tax rate would mean no more off-shore tax shenanigans.
Even if we weren’t in dire economic straits, a zero corporate tax is the right thing to do because large, successful corporations already contribute greatly to the public weal.
First, they do so by creating employment that creates wages that are taxed at the source through withholding.
Second, they do so because their corporate profits are taxed when they are distributed to their shareholders in the form of dividends.
I say we kill two birds with one rock by eliminating the corporate income tax and thereby eliminating corporate use and abuse of offshore tax havens.
8 responses so far ↓
1 Robert D Flach // Jan 19, 2009 at 9:00 am
PP
I am not sure if I agree with a “O” corporate tax rate. However I do support a “dividends paid” tax deduction for corporations.
If a corporation wanted to reduce or eliminate its tax liability all it would have to do is issue dividends. Corporate net profit = $2,000,000 and dividends paid to shareholders = $2,000,000 then corporate taxable income = 0 and corporate tax liability = 0.
This would first and foremost do away with the double taxation of corporate dividends. It would also mean that corporations would not have to resort to “creative accounting” a la Enron and offshore subsidiaries to avoid federal income taxes.
TWTP
2 Peter // Jan 19, 2009 at 4:49 pm
Robert,
I’d settle for your proposal. It would probably more palatable to electorate then an elimination of corporate tax.
3 Week ending . . . | taxguy // Jan 25, 2009 at 12:41 pm
[...] Peter over at The Tax Lawyer’s Blog has a real look at on a few things in his post Repeal the Corporate Income Tax and Bring Those Jobs Back Home. [...]
4 WHAT’S THE BUZZ? TELL ME WHAT’S A HAPPENNIN’ – : The Tax Forum // Jan 29, 2009 at 3:01 am
[...] Peter Pappas of THE TAX LAWYER’S BLOG suggests that we “Repeal the Corporate Income Tax and Bring Those Jobs Back Home”. Be sure to read my [...]
5 Sam // Feb 5, 2009 at 4:54 pm
Well the first misconception you have is that the jobs are created by the corporations. They are actually created by demand and the corporations answer the demand by creating products which it takes jobs to accomplish. Now I’m sure you would agree with the above so that would also suggest that a corporation would not create a 100K/yr job just because they have to pay 100K less in taxes. This just doesn’t make any sense. That money would go to some CEO or executive as profits would increase and therefore top salaries would increase. Now some companies might allow some of those profits to “trickle down” but how long would that last? We can see from recent history that it would be no time before they get us into another financial mess. The only thing you can be sure of is that rich people only want to get richer. That is the problem.
6 Peter // Feb 8, 2009 at 7:26 pm
Sam,
Corporations create jobs overseas instead of the U.S. because the after tax cost of labor is less there.
And poor people want to get richer too.
The difference is that rich people who want to get richer actually create jobs. And I think they should be rewarded for it.
We should give more money to those who have proven their ability to create jobs than to those who have no track record of job creation.
“The only thing you can be sure of is that rich people only want to get richer.”
Well of course they do. But the desire to be richer is not immoral, it’s simply human.
My guess is that you, too, would like to be richer.
Blaming others for your plight is a defense mechanism that relieves you of responsibility. If the odds are stacked against you from the outset, why try?
Shakespeare said it best:
“The fault is not in our stars . . . but in ourselves that we are underlings.”
7 Increase Corporate Tax Rates, Says Obama Chief Economic Advisor // Dec 2, 2009 at 5:48 am
[...] Repeal the Corporate Income Tax and Bring Those Jobs Back Home [...]
8 MD // May 27, 2010 at 9:49 am
When shareholders are foreign and receive dividends from an American based corporation they do not get taxed again by the IRS?
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