Pundits, politicians and economists insist that America is going broke. But, I beg to differ. Ours is a wealthy nation. There is money in America, if only we would look in the right places. National headlines tell of devastating layoffs and downsizing across the country. With states forced to reduce essential services, American is swiftly losing that’s which made the U.S. the envy of the world.
However, these harmful changes to our economic system and to our social landscape are entirely preventable. If only the multinational corporations would stop being deadbeats and tax cheats and burden their fair share of the load.
For example, General Electric paid zero taxes between the years 2005 and 2010, while amassing over 26 billion dollars in profits. Bank of America paid zero in taxes in 2009 (the year it received a 1 trillion dollar bailout) and earned 4.4 billion in profits. Exxon Mobil, in 2009, received a hefty bailout on the way to a 4 billion dollar profit year. Chevron during the same year posted a profit of 10 billion, yet paid zero taxes.
Since 1961, the total percentage of U. S. Federal income tax collected from corporations has been cut in half. It should be crystal clear that one sector of the economy is not paying its share. Over the last three decades, that burden has been shifted to the backs of the middle class and working poor.
Faced with the possibility of economic collapse, we will either continue down the road to default or the corporate section with have to step up to the plate. However, don’t hold your breath.
Multinationals have been getting away with paying less, while critical investments in our future (like healthcare, education, infrastructure, Research and Development, energy, and jobs) have gone ignored.
According to the present tax code, corporations should be taxed at approximately 35% on their U.S. earnings. And, to be fair, it is among the highest rates in the industrialized world. But, before you shed a tear on behave of American multinationals; their effective (actual) rate tells a different story.
For example, NIKE‘s effective rate in 2010 was 22.7%, J.C. Penny’s was 15.4%, Coca Cola paid 6.6%, Verizon manage to avoid paying taxes altogether with a -5.9%,Dupont -11.5%, and Yahoo’s effective rate was -9.6%.
All this is made possible because the tax code allows U.S. corporations to shift income out of the country to tax havens around the world. This game is played on a mega scale, denying the U.S. Treasury 170 billion a year in revenue. Small countries (i.e. Bermuda, the Bahamas, the Cayman Islands) lacking in natural resources, become business friendly environments, with laws hospitable to foreign capital.
Contrary to popular opinion, it’s not just the unsavory businessmen, drug traffickers, and the super rich who dispatch secret couriers to tax havens with suitcases filled with cash. Fact of the matter is, multinational like Apple, Microsoft, HP, IBM, Pfizer, Eli Lilly and company, and thousands of other tech companies and drug makers, do routine business in such havens.
Take the Cayman Islands for example. In one small bank building there are 18, 857 mailboxes, allowing a nebulous of corporations to claim offices (residences) there. Havens like the Cayman Islands act as way stations. Money passes through these way stations so it doesn’t’ get taxed in the places where it’s earned.
But, only in a political and digital sense is the money there. In reality, the money is safely tucked away in a bank vault (advance encrypted database) in the United States. It’s just that simple.
Using international tax rules to shift profits out of the U.S. (a high tax country), to countries like the Netherlands and Ireland (low tax countries) is called Transfer Pricing. None of this is illegal, regrettably.
Yes, Transfer Pricing is legal, but is it right? Slavery, apartheid, and denying women the right to vote were protected by a legal system, but were they right in doing so?
The multinationals, other than a mailbox or small office, have neither sales records nor employees in these havens. That’s because fortunes of the multinationals turn on American intellectual know-how, research, and productivity. Given these circumstances, shouldn’t the fruits of that labor remain in the U.S?
Consider this example. Forest Laboratories, a powerful pharmaceutical company, makes the antidepressant, Lexapro. 100% of its sales and work force is located in the good ol’ US of A. Yet, the lion share of its profits end up in Bermuda, which has a zero tax rate.
Gaming the System
Here’s how they game the system. The pharmacy fills your prescription for Lexapro. A chunk of the sale goes to the pharmacy and another to the drug distributor.
But, the bulk of the sale goes to Forest Laboratory’s subsidiary located in Ireland (another tax haven). Because of the tax rate, Forest found it more profitable to manufacture the drug in Ireland then ship it to its parent company in the U.S.
To further reduce the Irish tax rate, the subsidiary (Ireland) pays royalties to another company (a subsidiary of the subsidiary) located in Bermuda. Keep in mind, that this multi- billion dollar corporation has only a tiny law office on the beautiful island playground.
In 2009, Viagra played the same shell game with its parent company Pfizer. What it saved in taxes increased its net income by a cool billion. Shifting 100% of its profit off-shore helped them to wow Wall Street and secure a strong stock price.
In 2010, even as the economic recovery stalled and job dried up, corporate profits rose by 39%, reaching 1.68 trillion, an all time high. As Americans were losing their homes, their jobs, their health, and even their self respect; corporate America, on the other hand, was surging ahead with record profits. And, the wealth gap widens.
Financial globalization got underway in the 1960s. U.S. companies were just beginning to expand internationally. But, the Vietnam conflict was the real kick start. With some much cash going overseas, the U.S. found itself with a little balance of trade problem.
Enter LBJ, in 1968 the president (and formerly one of the most powerful democrat in the House) sought and got a law that essentially required companies to obtain a permit (passport for their money) before moving cash overseas.
Naturally, the young multinationals fought back in a congressional battle, managing to obtain a compromised agreement. In the bill’s final form, companies could keep their money off-shore and avoid paying taxes. But once that money returned to the U.S. it was fair game. In the aftermath of the new law, there was an explosive growth of off-shore banking.
Today, over 50 countries act as havens for profit obsessed multinationals. So, what we’ve got now are corporations -earning billions in profits, owning trillions in assets, and eligible for billions more in bailouts- paying zero in taxes.
Bring in the Hired Guns
Everything begins and ends with the U.S. tax code, seventy-two thousand pages of loopholes, vagueness and contradictory tax laws. Here, the multinationals turned to outsiders (hired guns): an army of accountants, lawyers, and lobbyist to navigate the voluminous text, using their arcane knowledge to reduce the effective tax rate of their clients.
But, the power of these lords of the tax codes reaches even further. They not only manipulate the codes, they contribute to it. Often these hired guns in Armani suits are asked to testify before congressional sub-committees of the House, Ways and Means committee, supplying drafted paragraphs which are incorporated directly into the code.
There are even more questionable (unethical) means by which multinationals game the system. The IRS, with its limited resources, is often set back on their heels in trying to make sense of corporate shell games (a multi-layered, multi-national series of transactions).
In a revolving door manner, today’s IRS officials later become the senior officials in the very firms hired to regulate, a lucrative reward for a job not done.
For example, from 2003 to 2007 Mark Everson, IRS commissioner, dedicated his life to plugging loopholes and demolishing shelters. Two year later he joined the Alliant Group, a consulting corporation, where he took his fight back to the Hill, this time urging congress to minimize tax bills. Talk about a turn around.
Corporations are People Too
When Clinton left office, America had a 200 billion dollar surplus. By the time Obama took office, America had a 1 year deficit of 1 trillion dollars with a projected 12 year deficit of 8 trillion more.
The global war on terrorism proved to be quite costly, and not only in U.S. casualties. The Afghan War cost 443. 5 billion dollars and the Iraq War cost 805.5 billion dollars. Soon after taking office, Obama was under tremendous pressure to sign 800 billion dollars worth of corporate bailouts. Thus, the president’s policies, like all the others, are forged by corporations. But, the most devastating lost has been the 2. 4 trillion lost since the Bush tax cuts commenced in 2001.
Now as our nation tries to have a serious discussion about the mounting deficit, the multinational are busy reshaping that discussion. One point consistently championed by the Republican Party is that there will be no tax increases. The party of Lincoln has been hard at work perpetuating the myth that Americans are over-taxed. While the truth is European nations, in the aggregate, are taxed at a much higher percentage rate.
Certainly, no one can deny that on our present course, we are headed for a catastrophic default, one capable of bringing the world to the brink of the apocalypse.
Therefore, budget cuts in the trillions are inescapable. Or at least that what conservatives are yelling from the mountaintop. We must all tighten our belts, they say. Obviously, that doesn’t pertain to the multinationals.
In 2011, congress cut the national budget by 38 billion dollars, the largest cut in American history. Furthermore, they’re looking to streamline (gut) Social Security and Medicaid, and reduce the nation’s investment infrastructure and human capital.
They argue that they are preserving the America way of life for future generations. Yet, what will our children’s future look like if we fail to invest in alternative energy sources, more efficient transport systems, and more reliable dams and levees, restoring our bridges and tunnels, reduce the cost of education, rebuilding roads and highways, R&D (technology banks in support of our industrial base), universal health care and 21st century jobs.
As the multinationals re-imagine America, U.S. cities and counties are facing a budgetary gap that threatens the very fabric of our society. State and locate authorities are forced to layoff essential service worker like teachers, firemen, and law enforcement.
As a result of our lawmaker’s irresponsibility, fewer and fewer young (middle class) Americans can afford a college education, crimes (like rape, murder and robbery) are on the rise, and firehouses are being shutdown resulting in needless fatalities.
But, other areas are being slashed to the bone as well. Libraries are closing their doors for good, affordable daycare is becoming a thing of the past, and mental health facilities are forced to turn away those badly in need of treatment. Without these critical investments, the wealthiest nation on earth will soon start to resemble a third world country.
Yet, how is this possible when the 1990s was the most financially profitable decade in American history? For a plausible explanation, perhaps we need to consult the golden rule: ‘he who has the gold makes the rules’.
In 2010, General Electric spent a whooping 39 million on lobbyist, another American record at the time. Spending on lobbyist skyrocketed from 1.4 billion in 1998 to 3.5 billion in 2010. It’s no coincidence that we began to witness the systematic decimation of America’s middle class roughly during this period.
Ronald Reagan called corporate tax a punitive burden. His ‘Morning in America’ speech promised Americans that they could have their cake and eat it too. He went on to say that ‘federal government was not the solution, but the problem.’
As the former B-list actor advanced in age, the monumental achievements of the U.S may have slipped from his aging mind. These achievements include: the building of Hoover Dam, creation of the Tennessee Valley Authority, connecting the nation through a vast and ubiquitous interstate highway system, rescuing the nation from the grips of Great Depression, construction of the Panama Canal, the defeat of Fascism, etc.
In 1981, tax revenue was 19.6 % of GDP (Gross Domestic Product). By 2010, it had dropped to 14. 9. These statistics alone point to the gradual underfunding of the federal government.
Part of the problem stems from the, highly-cultivated misconception that we can thrive as a people without paying more taxes. There no way in hell that this is possible, unless you subscript to the free lunch school of thought.
The Japanese and Chinese moneylenders have kept their interest rates conveniently low over the past few years to encourage our borrowing. But, have you ever stop to think of what will happen should they raise their rates to say, 10%? Can you say global disaster?
So, we have no option but to raise taxes. And, as the Republicans slash and burn their way through future federal budgets, so will the social rampage of austerity continue. Italy and Greece and Ireland have all traveled down that road. Ask the working class and poor of these nations how that plan is working out.
But, it would seem that the multinationals have become a victim of the own visa vis-a-vis Transfer Servicing. While U. S. corporations can borrow from the fed when their U.S. earnings are not enough, they would like to be able to bring home their estimated 1.4 trillion trapped abroad.
As a result, they have been working on a tax free return, a repatriation of their overseas profits.
Politician, bought and paid for by corporations, argue that these repatriated funds where create jobs here in the U.S. In 2004, Bush gave the idea a trial run with the Job Creations Act. The new law amounted to a 1 year amnesty on foreign U.S. corporate profits, the rate reduced from 35% to 5%.
During this time, Pfizer’s books reflected a profit of an additional 11 billion over the previous year. But, no additional jobs were created by Pfizer. In fact, they downsized dozens of laboratories and closed several plants. But, it did drive Pfizer’s stock up through the roof, earning executives hundreds of millions in stock options.
And, Pfizer wasn’t the exception. Citigroup, Ford, Apple, among others, followed the same disturbing pattern. Even in the light of this, congress is seriously contemplating a bill that would render all U.S. corporate earnings (present and future) aboard permanently exempt from taxation.
They argued that it necessary if the U.S. is to compete with the world. However, the UK adopted the same policy (100% tax exemption on repatriated profits) in 2010. Yet, the money and jobs continued their exit the country, leading to riots in London and other cities.
Permitting the multinationals to shelter their profits has/is having a devastating effect on small business in America. It’s nearly impossible for small businesses to compete with these hidden profits and other corporate advantages.
Thus, what we see is a ‘Walmarting’ of America, with mom and pop enterprises becoming a thing of the past. And, just as disconcerting is the idea that such events are leaving little room for Americans to pull themselves up by their bootstraps. Ironically, the very same politicians rail about protecting the small businesses and entrepreneurial spirit while supporting tax exemptions for the multinationals.
Multinationals own congress by way of purchase. Their influence on Capitol Hill has never been more on display. Thanks to the Supreme Court (Citizens United), there’s literally no limited to their contributions, throwing open the floodgates of political corruption and fraud.
And, the Democratic are no different than their Republican rivals when it coming to raising money. In 2008, President Obama raised 746 million from PAC’s affiliated with corporations. However, with the cost of presidential campaigns reaching the billion dollar mark, 1500 dollar donations wouldn’t deliver the Oval Office. Some say that Obama’s choice was unavoidable, doing a little bad to do a lot of good. Some people buy it.
IBM’s campaign contributions, during the 2008 campaign year, amounted to 532 million dollars, Google 85 million, Motorola 69 million, and Xerox 32 million. Why would these multinationals tender such largess if they didn’t expect a return on their investment?
Therefore, it should come as no surprise that legislation that would raises taxes on the 1% are met with stiff opposition in the form of filibusters, pigeonholing, and other obstacles. Politicians that try and advance the cause of equity in taxation, pay the price on Election Day. Suddenly, the candidate that’s challenging the foolish incumbent is suddenly flushed with campaign contributions.
Their trucks use our highways, our military protects their overseas investments (acquisition of third world resources), and avalanches of corporate litigations overburdens our court systems and they still refuse pay their fare share. Action must be taken to bring the unethical behavior and corruption to an end! But, remember, power concedes nothing. Thus, if change is to come about, people can't just demand it. They must be willing to fight for it.
“We can either have democracy in this country, or we can have great wealth concentrated in the hands of the few, but we can’t have both”
- See more at: http://northstarpub3.com/blog/were_not_broke/#sthash.rJlKnOdO.dpuf
No comments:
Post a Comment