Taxes are for Suckers

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Posted on Apr 2, 2013

Image by (cc) Flickr user Steve Rhodes

Imagine paying almost nothing in taxes. Sounds great doesn’t it? Some of America’s biggest companies are doing just that and making millions… or even billions in profits- thanks to loopholes and more than a little political influence…On this edition, why does big business pay lower tax rates than the rest of us? And how activists have brought the issue into the spotlight.
This program includes excerpts from the film “We’re Not Broke” produced by Onshore Productions.

Featuring:

Jesse Drucker, Bloomberg News reporter; Rebecca Wilkins, Citizens for Tax Justice attorney; Martin Sullivan, Tax Notes journalist, Jeffrey Winters Northwestern University Professor of Political Economy; David Marchant, Offshore Alert publisher and journalist; Senator Carl Levin; Lee Sheppard, Tax Notes contributing editor; Nicholas Shaxton, “Treasure Islands” author; Jack Blum, tax attorney and investigator; James Henry, “Blood Bankers” author; David Cay Johnston, journalist; Robert Goulder, Tax Analysts editor in chief; Dave Camp, Michigan Representative; Mark Everson, Internal Revenue Service former Commissioner; Ryan Clayton, US Uncut co-founder.

For More Information:

We’re Not Broke
Offshore Alert
REEL ECONOMY at Working Films
Citizens For Tax Justice
US Uncut
Treasure Islands: Tax Havens and the men who stole the world
The Blood Bankers: Tales from the Global Underground Economy Tax Analysts Internal Revenue Service

TAKE ACTION

Web Extras: Multimedia
What do the CEOs of America’s biggest Tax Cheating Corporations Want?
Why doesn’t Obama make billion dollar corporations pay their fair share?
Corporate Tax Rates (The Big Fake Out)
Tax Infographic
Reel Economy
united for a fair economy
TFOC Tax Fairness Tune Up

Episode Transcript

[MUSIC PLAYING] – This week on Making Contact.

Today is tax day. But did you know that corporations from GE, Bank of America, and Verizon, they don’t pay taxes?
Imagine paying almost nothing in taxes. Sounds great, doesn’t it. And some of America’s biggest companies are doing just that and making millions or even billions in profits, thanks to loopholes and more than a little political influence.
It’s just become more and more common for the revolving door to swing between private business and the IRS. So it’s sort of like a fraternity now.
On this edition, why does big business pay lower tax rates than the rest of us, and how activists have brought the issue into the spotlight. I’m George Lavender and this is Making Contact, a program connecting people, vital ideas, and important information.

[MUSIC PLAYING]

We’re broke. We’re broke. America’s broke.
We’re broke.
We’re broke.
We’re broke.
We’re broke. We don’t have the money anymore.
Thousands of Pasco County School employees are waiting for word on who will lose their jobs this week.
State legislatures looking to cut budgets are increasingly targeting the courts which have been forced to layoff thousands of staff workers.
Up to 80 police officers may be laid off by the end of June.
Washington has been obsessed cutting spending. Everyone’s talking about cuts, no one’s talking about where the money is going to come from.
We’re a wealthy country. We’re not broke. The money’s there. We’re just not looking in the right places.
These days, it seems like governments everywhere are making big spending cuts. Often they say it’s because they just don’t have the money to carry on spending. But businesses based in the US continue to bring in big bucks and critics say they’re not paying their fair share in taxes. On today’s show, we’ll hear excerpts from the film We’re Not Broke by Onshore Productions, and ask are corporations laughing all the way to the IRS?
General Electric, one of the giants of American business, is on the hot seat tonight because of its 2010 tax bill– zero.
Exxon Mobil, largest oil company in the world, made $19 billion of profits in 2009, paid no federal income taxes. So if you’re a working stiff, you’re making $30,000, $40,000 a year, you’re paying taxes. But if you’re Chevron, and you made $10 billion in profits in 2009, you don’t have to pay any taxes. Citigroup made more than $4 billion in profits, but paid no federal income taxes.
Money can buy. Money, money, money, money. Money can buy–
If one sector of the US economy is paying less, then either we run larger deficits, or others are asked to pay more.
It just shifts the burden to the average honest taxpayer. And that’s what’s so totally offensive and so totally unacceptable here.
The losers, in effect, are all of us who have to pay more tax as a result of the multinational firms paying less.
We need to start talking positively about where the money is going to come for critical investments in education, health, infrastructure, and jobs. And that’s a conversation we’re just beginning to have.
Corporations in the US pay income tax on their US earnings.
Rebecca Wilkins, attorney with Citizens for Tax Justice.
The statutory tax rate is 35%.
The US corporate tax rate at 35% is one of the highest in the world now.
Jesse Drucker, reporter with Bloomberg News.
You know, you look at countries in Europe, they are in the kind of high 20s and low 30s.
Martin Sullivan, journalist at Tax Notes.
But most corporations pay far less than that 35% rate. And the effective tax rate is a measure of what they really pay. So for a typical corporation that has a lot of multinational activity, their effective tax rate might be in the low 20s, or in the teens, or even in the single digits.
Attorney Rebecca Wilkins.
Some of them are paying a negative tax rate on their US earnings because of the things they’re doing offshore. They’re playing all kinds of games to reduce their US income tax to ridiculously low levels.
The issue of companies shifting income ultimately to tax havens should really be at the top of the agenda right now.
Somewhere on the order of $70 billion a year are lost to the US treasury, just from offshore tax shelters.
That was Jeffrey winters professor of political economy at Northwest University. We hear a lot about tax havens in the news. But what exactly are they? Here’s David Marchant, publisher and journalist of OffshoreAlert.
Offshore financial centers are typically small countries with few natural resources. They’ve created a business-friendly environment, business-friendly laws, in order to attract foreign capital.
There is a belief that the offshore world is somehow the province of shady businessmen and rich folks who set up offshore bank accounts that cheat on their taxes, but largely people who we’ve never really heard of. And that belief is false. Basically every major technology company and every major drug maker in the US relies on the offshore world for a very significant portion of its profits.
The Cayman Islands, where you have just in one relatively small building, thousands and thousands of post office boxes–
Senator Carl Levin.
It’s called the Ugland House where companies here claim to have an office, even though there’s no economic activity that is going on there.
Multinationals will use a tax haven as a way station.
Lee Sheppard is a tax attorney and contributing editor at Tax Notes.
That is not a place where they put money like people do. They pass money through there so it doesn’t get taxed in the place that they earn the money.
Professor Jeffrey Winters.
The money only passes through in a sort of digital and political sense. But the money itself is onshore.
It’s in a bank in the United States, but it’s booked at these places.
So how did we get here? To find out we have to go back 50 years.
The drilling is done with power and equipment from big barges tied up to the weld platforms. Now, I have to speak Spanish because 92% of Creole’s employees are Venezuelan.
Nicholas Shaxson is author of Treasure Islands.
Ever since, really, the period of globalization, that’s when the big growth of offshores happened.
Jack Blum, tax attorney and investigator.
In the 1960s, American corporations were beginning to really expand internationally.
Isn’t that delicious?
We were also engaged in the Vietnam War, and this posed a very serious economic problem for Lyndon Johnson. We were taking too much money out of the country to pay for the war. If the money goes out of the country, your balance of trade numbers go bad. And we had to somehow make the numbers look better.

So Johnson imposed capital controls. If you wanted to take money out of the country, you had to get a permit from the Treasury Department.

The corporate community was absolutely furious that they were being restrained. So they kicked off a huge storm. And a kind of compromise was negotiated where companies could avoid paying tax on foreign income as long as they kept it offshore.
American law says you can defer recognition on your active business income. That’s deferral, as long as you don’t bring it back to the United States.
So if it’s offshore, it stays untaxed until you bring it home.
And all of a sudden, there was an explosive growth of offshore banking. By today’s standards that offshore activity was relatively modest. We’ve come a long way since then.
Today there are 50 countries designated as offshore tax havens. Reporter Jesse Drucker explains how they work in practice.
They just use the international tax rules to shift profits out of the United States and other high tax countries into low tax countries. And that’s called transfer pricing.
The whole game and transfer pricing is to allocate as much income as possible to a low tax country, or a tax haven, and as much expense as possible to a high tax country, like the US. The problem is that you have companies that are allocating for tax purposes the bulk of their profits to parts of the world, where in some cases, they have no employees, they have no sales, they have no real economic activity of any kind.
Under US tax laws, there’s nothing illegal about what they’re doing. But by any reasonable standard, when most of your business is in the United States, and most of the intellectual know-how, research, and productivity is in the United States, the profits that are taxed should also be in the United States.
Economist James Henry is author of Blood Bankers.
One of the most interesting examples of how transfer pricing moves profits around the world is with a company called Forest Laboratories. And they make a very successful antidepressant called Lexapro. This is a company that has virtually 100% of its employees in the US. It has almost 100% of its sales in the US. Its headquarters is in the US. But the bulk of its profits end up in Bermuda.

The way Forest does this is if you walk into a drugstore and you buy a bottle of Lexapro, you know, a chunk of that goes to the drugstore, and a chunk of it goes to a drug distributor. But the majority of it ends up with a Forest unit in Ireland, which actually manufactures the drugs and sells them to its US parent company.

The reason why they have their manufacturing located in Ireland is because Ireland has a low tax rate. But Forest does not simply let the profits stay in Ireland. Forest pays royalties for the use of the patent to the drug to another Irish company that claims, for tax purposes, that it’s managed in Bermuda.

The office they list as their center of management in Bermuda, it’s a law office. There are no Forest employees there. But US tax law and Irish tax law lets Forest allocate the majority of its overseas profits to, ultimately, a law office in Bermuda.

Pfizer has become so adept at their profit shifting that now, they report 100% of their profits, in offshore locations, and they have no profits being reported in the United States. In fact, they have losses in the United States. For the US treasury, the implications are a tremendous loss of tax revenue.
It’s hard to imagine how it could get worse, but it actually could.
I propose to eliminate all federal corporate income tax.
I think we do need a reduction permanently in the corporate tax rate.
If you want people to obey the tax system, and you want freedom, and you want economic growth, lowering tax rates is the way to go.
The problem here is this that Britain just did this. The British said, oh my goodness, companies are running out the door. We must lower our corporate rate to bribe them to come back. And they’re still moving money to the Channel Islands and things like that.
They could cut it to 30, they could cut it to 28, they could cut it to 26. But you really can’t compete very well with zero.
Well, Estonia cut taxes. Other European countries did the same thing. And soon, it was like an arms race to the bottom.

And now, Ireland, if you’ve been there, is a mess. I mean, the public sector is starved for capital. Corporate investors that came to Ireland from Silicon Valley weren’t really doing anything real. It was a shell game.

So the result is today when it went away and shifted elsewhere, Ireland is left without any infrastructure, without any R&D base. And with no competitive advantage. It was just a tax haven. And it’s learned the hard way the tax havens come and go.

So why does the US allow big business to do this? Journalist David Cay Johnston explains.
What we’ve done is allowed one group of people, the people who pay corporate taxes, to decide what the rules are by buying politicians or renting them through the campaign process.
If you live in Washington DC long enough, you know that the corporate multinationals pretty much own Congress.
Robert Goulder is Editor in Chief of Tax Analysts.
We give you campaign money. You get yourself elected. You help us hide our money offshore and not pay our taxes.
Again, attorney Lee Sheppard.
Congress is totally motivated and controlled by money. If you talk to individual members, you’ll find that they’re sensible folks mostly, and they know what the problems are. And they can say, oh, yes, yes, yes. This is a problem. This is a problem. We must do something about this. And then the next sentence will be but we can’t. Because. Because why? Business doesn’t want it.
Is this really on the table, and when? People are so anxious in business, in the investment community. What can you tell us?
I sure hope it’s on the table. I’m going to put it on the table in the Ways and Means Committee.
Representative Dave Camp of Michigan speaking on CNBC.
I think this is so critical. Our tax code is too complex, too inefficient, too burdensome, too high.
Money. Money can buy you silks and sable false religion, fame and fable. Love is there–
Senate Democrats failed to pass a bill Tuesday that would punish companies for shifting jobs overseas. A bipartisan filibuster is to blame for the legislation’s collapse.
Why, oh why, oh tell ’em why. Ain’t there something that money can’t buy. Money, money.
We’ll be right back.
You’re listening to Making Contact, a production of the National Radio project. Because of listeners like you, this show is distributed for free to radio stations in the US, Canada, Australia, and South Africa. To find out how to support us, download shows, or get our podcasts, go to radioproject.org. Like us on Facebook and follow us on Twitter. Our handle is Making_Contact.

Coming up next– remember this?

Here’s what I’ll do as president. To deal with our current emergency, I’ll launch a rescue plan for the middle class and close the corporate tax loopholes the lobbyists put in.
We’ll find out how a grassroots movement is trying to hold President Obama to his word.
We ask that you limit your oral testimony to no more than five minutes. You may proceed, Commissioner.
Thank you for inviting me to discuss offshore abuses.
That’s Mark Everson– then the Internal Revenue Service Commissioner– testifying at a Senate subcommittee hearing on tax haven abuse in 2006.
As always, I appreciate the opportunity to testify before the subcommittee. In particular, I appreciate your strong support for strengthening the integrity of our tax system and for enhanced enforcement.
The IRS rules are extremely squishy.
Martin Sullivan.
And the IRS has very limited resources. The private sector and businesses have enormous resources. They have an army of consultants, lawyers, economists. When I worked at the Arthur Andersen, I worked in the big tax department, the whole thing was reducing the effective tax rate, reducing the effective tax rate.
Corporate tax abuse isn’t something that corporations are just inventing on their own.
James Henry, author of Blood Bankers.
They turn to experienced outsiders, not only lobbyists, but also law firms and accounting firms. So their ability to operate on the boundaries of the law are continually improving. And it ought not to be the case that if you’re a major corporation that your tax return is completely off the books. But not only are returns secret, it’s very hard to know what the Corporation X paid in taxes, what they declared as their income. The argument that the IRS and the companies have made is that this is commutative information.
But some people have a vested interest in maintaining our confusing tax system, as Professor Jeffrey Winters explains.
If there were complete tax certainty, the income defense industry would collapse. In 1913, when the federal tax code was first put into place, it was only a few hundred pages. Today, the US tax code is 72,000 pages. It is full of loopholes, contradictions, if one can master those 72,000 pages on behalf of one’s clients, one can literally drive a semi truck right through the openings that are created in the tax system.

The industry has an interest, not only in mastering those pages, but maintaining the complexity and adding to it. It’s not uncommon in the tax writing committees in Congress to have the same income defense industry that navigates through those pages supplying draft paragraphs that are incorporated directly into the pages on behalf of their clients and the interest that they serve.

Over the years, it’s just become more and more common for the revolving door to swing between private business and the IRS. So it’s sort of like a fraternity now.
The people who specialize in transfer pricing at the IRS have a way of becoming the senior officials at Price Waterhouse, or the accountants at KPMG who are in charge of the transfer pricing practice.
Remember IRS commissioner, Mark Everson?
This subcommittee has shown impressive leadership in combating abusive tax shelters, and those who play fast and loose with the tax code.
Two years after he left the IRS, in 2007, Everson joined alliantgroup, a firm that consults corporations on minimizing their tax bill.
There is some evidence that the IRS is kind of ratcheting up the pressure. They’ve sort of reorganized some of their enforcement mechanisms. But there’s a school of thought that you could double the number of IRS agents and attorneys to look at this stuff. And fundamentally, it’s very difficult to enforce a system that is based on a series of made up transactions.
And that revolving door, turns out it turns both ways.
We want an economy that’s fueled by what we invent and what we built. Nobody understands this better than Jeff Immelt.
President Obama appointed Jeffrey Immelt, the CEO of General Electric, to his council on jobs and competitiveness.
He understands what it takes for America to compete in the global economy.
This business was one of the few businesses in the world, Mr. President, that had positive earnings every year during the crisis. Now honored to lead your council on competitiveness and jobs. It’s a great honor. And I know that despite the fact that 60% of GE’s revenues were outside the United States, I personally, in this company, share in the responsibility and the accountability to make sure that this is the most competitive and productive country in the world.
Two months later, the New York Times breaks the story that in 2010 GE earned $5.1 billion in US profits, but paid nothing in federal income tax.
CEO Jeff Immelt defended his company before the Economic Club in Washington, arguing the company has done nothing wrong.
Like any American, we do like to keep our tax rate low. But we do it in a compliant way, and there are no exceptions.
The news even got Bill O’Reilly riled up.
All right, I’m going to pay millions of dollars to the federal government this year. Millions. OK? And GE pays nothing. Tell me. Tell me.
You’ve got to spend more, not only on finding tax loopholes, Bill, you’ve got to do what GE does. You’ve got to spend a small fortune creating those loopholes. It’s what I call non taxation through extraordinary aggressive representation that has to be bought. And, by the way, corporate America, Bill, buys, with $4 billion a year, representation that you and me and our fellow citizens can’t buy in Washington.
The scale of this activity has exploded in the last decade. So there’s just an enormous increase in the number of folks in Washington whose sole mission is to influence congressional outcomes.
You know, the genius about offshoring is you don’t have to convince the American public of anything. All you have to do is convince the chairman or the ranking member of a couple of committees on Washington. And that’s what these campaign contributions are– all the trips on corporate jets, the golf outings, the jobs when you leave– like Senator Phil Gramm, who left the Senate Banking Committee and becomes a vice chairman of the big Swiss bank, UBS. We’ll take care of you while you’re in office, and we’ll really take care of you after you get out of office.
But some Americans say they’ve had enough of these kind of arrangements.
[INAUDIBLE]
[INAUDIBLE]
Tell me more about US Uncut. What is the main mission here?
US uncut is a grassroots organization that self-organizes through social media. And we call out corporate tax dodgers so that we don’t have to go and cut valuable public services.
That’s Ryan Clayton, co-founder of US Uncut.
The fact that I pay more income taxes than a multibillion dollar corporation that has trillions of assets and got bailed out is just unbelievable. You get really angry, but you also get really inspired. You’re like, oh, that’s what’s going wrong.
The movement is called Uncut, and is modeled after a grassroots effort in the United Kingdom that publicizes companies that avoid paying taxes.
I read this article about UK Uncut in The Nation magazine– “How to Build a Progressive Tea Party.”
No public [INAUDIBLE].
So many people’s homes have been closed.
People in this country are incredibly angry. UK Uncut actions have basically involved people around the country using social media to–
I immediately get on Facebook and start a group, send it to a bunch my friends. A little while later, I notice this person, Joanne Gifford, online. She seems like this really levelheaded, reasonable person. She’s a soccer mom from Napa, California.
I read the article in The Nation, and I was so jacked up about it, that I went to Facebook to create a group. And I’ll be darned if Ryan wasn’t a step ahead of me.
Joanne sees this guy, Carl from Mississippi, on our side. And Carl is posting all over the Facebook page.
I started a Facebook group, web page, Twitter account. I just intended this for people in Jackson, Mississippi to have a local protest. And then folks all around the country said, I want to do something in my community, too.
My professor, she was reading one of my blogs, and I was talking about how we have to do something. And she said, I just heard on the radio about US Uncut. And I just said, let me post it on Facebook. And that same night, two of the students immediately said, I’m in.
A friend through Facebook posted that there was a national movement called Uncut, and that we had a group of people gathering in Chicago in front of Bank of America. And without a blink of an eye, I said, I’ll be there.
I found, like, the local US Uncut chapter guy, got in touch with him. He didn’t have time, so I took over the chapter. And it’s basically me getting in touch with everyone, organizing events.
I heard about it on the radio. And I wrote, you know, in scribbly handwriting while I was driving, you know, usuncut.org. And it was just about the time that Wisconsin was happening with Scott Walker, and I got so upset. I was like, I can’t sit around and scream at my TV anymore. I actually have to get out and do something.
We spent a lot of our time complaining about the people that are making the policies. We’re not looking inside ourselves and saying, how have we contributed to this ending up the way it is? It’s because we didn’t keep the pressure on. So that’s what drives me doing something to make a difference.
Around the country, US Uncut has organized actions to draw attention to big businesses they accuse of tax dodging.
US uncut protests over the weekend. They again went after Bank of America, because apparently they have a huge amount of profits and they don’t pay much taxes.
If they want to do business here, they have to pay taxes here. That’s just how it goes.
Today is tax day. But did you know that corporations from GE, Bank of American, and Verizon, they don’t pay taxes?
It has the look of an official corporate release– the logo at the top, the almost perfect looking website URL, and a top heading– GE promising to donate a $3.2 billion tax refund to help offset cuts and save American jobs. Only thing, it’s completely phony. The guys behind the prank, they call themselves US Uncut.
Bank of America, pay your taxes. When you don’t pay your taxes, we have to fire firefighters, and teachers, and public servants. You’re a tax dodger. And Bank of America, you’re bad for America. Pay your taxes. Tax dodgers! Bank of America’s a tax dodger. Pay your taxes!
I mean, Americans know in their heart that this is unfair.
People say, well, you know, we can’t do anything about it. I disagree.
I think it’s already been proven with the work we’ve done over the last year that you don’t have to accept it. It doesn’t have to be the way things are.
And that’s it for this edition of Making Contact. You’ve been listening to excerpts from We’re Not Broke, a film by Onshore Productions. For more information about the film, go to werenotbrokemovie.com. Check out our website, radioproject.org to get a podcast, download past shows, or make a difference by supporting our work, just like Pat from Taunton, Massachusetts did.
I’m an admirer and a supporter of Making Contact because they’re out there doing work on the issues that mean a lot to me– justice, and fairness, and just caring about other people and about our planet.
Like Making Contact on Facebook or follow us on Twitter. Our handle is Making_Contact. Lisa Rudman is our executive director, Jen Chen and Andrew Stelzer, producers. Irene Flores, web editor. Lisa Bartfai, Salima Hamirani, and Aaron Mathewson– production interns, and Barbara Barnett, Larry Piltz, Jan Turner, and Altenburg Volunteers. I’m George Lavender. Thanks for listening to Making Contact.