Month: December 2015

Earlier this week Donald Trump criticized Amazon chief Jeff Bezos for allegedly using his purchase of the Washington Post as a tax dodge. Trump’s claim that Bezos is using the Post’s losses to reduce Amazon’s profit is clearly wrong since the newspaper is owned by Bezos, not by Amazon. But by making this claim, Trump does draw attention to the fact that Amazon pays a low effective corporate tax rate and has dodged $1 billion in taxes thanks to various loopholes. In fact, Amazon has often incorporated tax avoidance strategies into its business plan.

For example, it’s well documented that Amazon’s growth as a retail giant was fueled by the company’s ability to avoid collecting sales taxes on its retail sales. Not collecting sales tax gave the company an immediate advantage over its brick-and-mortar competitors. For years, the company fought tooth and nail against sensible legislative efforts to put the company on a level playing field with mom and pop retailers. Yet, thanks to hard fought reforms in the states, this will be the first holiday season when Amazon will be collecting sales taxes in a majority of states.

Amazon has been equally adept at avoiding the corporate income tax. A 2014 Citizens for Tax Justice and Institute on Taxation and Economic Policy report found that Amazon paid just a 9.3 percent effective federal income tax rate over a five-year period between 2008 and 2012. In other words, the company found ways to avoid paying taxes on almost three-quarters of its U.S. profits during this period. The same report found that Amazon reduced its tax bills by $1 billion through an arcane tax dodge generated by lavish executive stock options—more than any Fortune 500 corporation other than Google, Facebook, ExxonMobil and J.P. Morgan.

Donald Trump has shown little evidence that he’s concerned about making our tax system more sustainable. But he’s likely correct about one thing: Amazon would not be where it is today absent the company’s long-term pattern of aggressively avoiding taxes at the federal, state and local levels. 

Read the Tax Justice Digest for recent reports, posts, and analyses from Citizens for Tax Justice and the Institute on Taxation and Economic Policy.

Facebook CEO Mark Zuckerberg made waves this week with his announcement that he will eventually giveaway virtually all of his wealth for charitable purposes. As Bloomberg’s Jesse Drucker noted, Zuckerberg appears poised to implement his plan through a new entity that, unlike more conventional charitable foundations, won’t actually be required to act philanthropically. 

But for those familiar with the tax avoidance tactics practiced by the Facebook Corporation in the U.S. and abroad, it should come as no surprise that Zuckerberg’s approach to philanthropy is set up to avoid any unnecessary tax liability.

Facebook has used an executive stock-option tax break to lower its taxes by $4 billion dollars over the past five years, allowing the company to pay a federal income tax rate of only about 8 percent during that time. Put another way, the company has been able to shelter almost eighty percent of its profits from tax during this period using just this one tax loophole. And Facebook has also been an unabashed user of a complex foreign tax dodge known as the “double Irish.”

These aggressive tax-avoidance maneuvers impose a real cost: every dollar of income tax that Facebook doesn’t pay is, ultimately, a dollar that must be made up by the rest of us, either through higher taxes on middle-income families or draconian cuts in infrastructure spending.

Since Andrew Carnegie, our country has had a long tradition of philanthropy among the wealthiest Americans. If Mark Zuckerberg ultimately lives up to his promise to donate his wealth to needy causes, his contributions could make a huge difference in the lives of many Americans. But we shouldn’t lose sight of the fact that his company’s pattern of aggressively reducing corporate income tax payments is making the lives of Americans worse right now, by shortchanging America’s tax system of needed revenues. 

Pennsylvania leaders have again pledged that a budget deal is in reach, despite the collapse of a recent compromise (and, of course, the compromises before that). The state is also in its sixth month of stalemate. Gov. Tom Wolf says that negotiations are down to “details and language,” with revenue raising measures being a sticking point. Legislative leaders have ruled out a broad-based tax increase so negotiators are working on a way to raise $600 million without a sales tax rate increase. Rather, a wider range of goods and services will be subjected to sales tax, including admission to museums, amusement parks, and golf courses. A proposed property tax reduction is no longer under consideration. Both houses of the legislature plan to work through the weekend on reaching a deal.

Mississippi leaders will push forward with tax cuts next legislative session even though revenue collections are sluggish enough to threaten mid-year budget cuts. Gov. Phil Bryant and Lt. Gov. Tate Reeves, both recently reelected, will try again to push tax cuts after being defeated during the last session. A likely target is the state’s business franchise tax, which is a levy on a business’s property used, invested, or employed. Eliminating the tax, which brings in $245 million annually, is a prime item on both men’s agenda, and bigger Republican majorities in the legislature make it a possibility. House Republicans are just on vote shy of the 3/5 supermajority required to pass a tax cut. Mississippi’s Legislative Black Caucus warned that the state would be unable to afford a deep tax cut like the ones proposed by leaders last session.

Florida Gov. Rick Scott has never met a tax cut he doesn’t like, and if he has his way the upcoming legislative session will give him plenty to love. Scott wants the legislature to pass $1 billion in tax cuts aimed at businesses to fulfill a campaign promise. So far, leaders in the Senate have balked at the hefty price tag, arguing that the governor shouldn’t push business tax cuts at the same time he wants to rely on property tax increases for more school funding. Budget officials estimate that Florida will see a surplus of $635 million this fiscal year, but some argue it would be irresponsible to use that one-time money for permanent cuts. In a rare move, Scott appeared before a House panel to argue that his tax cuts would be good for the state’s economy. A recent editorial in the Sun-Sentinel pushed back on the governor’s claims, saying that eliminating corporate income taxes for manufacturers and retailers won’t address Florida’s problems. 

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Do you have a exciting piece of state tax news that should be featured in the State Rundown? Send it to Sebastian at sdpjohnson@itep.org. And don’t forget to sign up for the Tax Justice Digest and follow ITEP on Facebook and Twitter!

Leaders in Illinois, which has not had a budget for six months, have thrown up their hands when it comes to making a deal. Despite the resumption of talks between the governor and legislative leaders, a compromise is nowhere in sight. Since July, the state’s bond rating has been downgraded twice and social service agencies are scrambling to provide crucial services without money. The state’s problems go beyond not having a budget in place – revenues are also short more than $5 billion needed to fund government services.  This is because lawmakers allowed a temporary increase in the state’s personal and corporate income tax rates to rollback on schedule at the beginning of the year, even though the state was not back on solid fiscal ground.

Many lawmakers spent Tuesday’s budget summit patting themselves on the back for being in the same room, but divisions remain. Gov. Bruce Rauner wants the legislature to agree to non-budget issues as a part of any compromise, including legislative term limits, changes in redistricting and weaker collective-bargaining laws. His opponents in the legislature say these measures would harm the middle class. Furthermore, there has been no agreement on raising needed revenue to patch the budget gap.  Meanwhile, the state continues to spend money at a rate that eclipses revenue coming in, adding to the deficit. Leaders did agree to a stopgap measure that would allow lottery winners to be paid and help municipalities shovel snow and operate 911 centers.

Of course, this budget drama could have been avoided. Lawmakers have always had revenue raising options available to them, as this report from Illinois Fiscal Policy outlines.  

Congress is on the verge of passing a five year transportation funding package built around a strange mix of revenue sources.  As many observers have pointed out, a more coherent and long-term solution would have been to increase and reform the nation’s largest source of transportation revenue: the federal gasoline tax.  Unfortunately, this option has been kept off the table for over 22 years.

Why is that?

An article in The Washington Post linked the lack of Congressional interest in the gas tax to “a pledge inspired by the conservative activist Grover Norquist, promising never to raise taxes.”

Similarly, the former head of the National Association of Manufacturers recently said that “the Norquist anti-tax pledge” is the primary reason that Congress has not taken the “obvious” step of raising the gas tax.

And Sen. Sherrod Brown (D-Ohio) indicated that a gas tax increase was not seriously considered this year because the “majority party … signed a pledge to a Washington lobbyist.”

Without a doubt, anti-tax attitudes in Congress have been a major factor in keeping gas tax increases off the table since 1993.  And Grover Norquist of Americans for Tax Reform (ATR) has done quite a bit to shape and maintain those attitudes.

But when it comes to his “Taxpayer Protection Pledge,” it appears that Norquist’s reach is being exaggerated.

The full text of the 57 word pledge (PDF) signed by members of Congress is as follows:

I, ___________, pledge to the taxpayers of the state of __________, and to the American people that I will:

ONE, oppose any and all efforts to increase the marginal income tax rates for individuals and/or businesses; and

TWO, oppose any net reduction or elimination of deductions and credits, unless matched dollar for dollar by further reducing tax rates.

Clearly, there is no language in this pledge that is designed to prevent signers from voting for a gasoline tax increase.  Only income tax rates, deductions, and credits are mentioned in the federal pledge (the state-level pledge is another matter).

Of course, the folks at Americans for Tax Reform should know this better than anyone.  But when asked about the significance of the pledge during debates over the gas tax, the group is inevitably coy.  Politico, for example, reported earlier this year that ATR “did not say whether it would consider a gas tax hike this year a violation of its anti-tax pledge.”

In reality, Politico did not need to bother asking.  Anti-tax attitudes have certainly played a role in keeping overdue gas tax reforms off the table.  But Grover Norquist’s pledge is very clearly not a factor.

Critical expansions to the Earned Income Tax Credit (EITC) and Child Tax Credit (CTC) will expire without action from Congress, making life harder for working families already struggling to make ends meet. More than 13 million families (nearly 25 million children) would see their taxes go up by an average of $1,073 annually.

As Congress and the president negotiate an end of year tax deal, they should say yes to the working families’ tax credits and no to the tax extenders. At a time of record corporate profits and record income inequality, making permanent the expansions to the EITC and CTC, rather than more tax breaks for big corporations, is just plain commonsense.

Scroll over your state below to see the impact of the EITC and CTC expansions.

Impact of Expansions in EITC and CTC:

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Some U.S. lawmakers on Tuesday used a pair of hearings in the Senate Finance Committee and the House Ways and Means Committee to showboat for corporate special interests and oppose a growing worldwide movement to crack down on international tax avoidance.

Last month, leaders of the 20 largest economies in the world approved an action plan developed by the Organisation for Economic Co-operation and Development (OECD) that, if implemented, could help ensure that multinational corporations pay their fair share in taxes. Rather than embracing the OECD’s ideas, some lawmakers claimed that the plan would actually harm the U.S. tax base. During the House hearing, Rep. Mike Kelly (R-PA) alleged that countries are looking to pick the pocket of U.S. companies.

In reality, the U.S. government and the American public have the most to gain by enacting the OECD measures and leading the way in cracking down on corporate tax avoidance schemes. A recent report by international tax expert Kimberly Clausing found that the U.S. loses more revenue than any other country to offshore corporate tax avoidance. By her count, the U.S. lost $93.8 billion in revenue in 2012, representing about a third of all the revenue lost to international corporate tax avoidance. Similarly, a joint report by CTJ and U.S. PIRG found that members of the Fortune 500 were avoiding a stunning $620 billion in taxes by holding $2.1 trillion in earnings offshore.

The OECD action plan was born out of the dire budget constraints that governments faced after the international financial crisis. Following the crisis, activists and lawmakers throughout the world became outraged by the low tax rates many multinational corporations were paying at the same time that low-income individuals continued to face harsh austerity measures. The G-20 charged the OECD with developing a framework for international cooperation between countries to stop the “base erosion and profit shifting” (aka BEPS) that allow corporations to avoid paying taxes.

After a two-year process of research and discussion, the OECD released the details of a 15 point BEPS action plan in early October. Some of the best proposed measures in the action plan include action 2’s measures targeting hybrid mismatch arrangements, action 4’s proposal to limit excessive interest deductions and action 13’s proposal for country-by-country reporting of profits and tax information. While action 13 is a good step forward in that it would require country-by-country reporting of information to governments, this provision should be made substantially stronger in the future by requiring that companies make this information publically available.

Showing their backward approach to these issues, some lawmakers have argued that the best solution to offshore tax avoidance is to enlarge the existing loopholes and to enact massive new ones. For example, House Tax Policy Subcommittee Chairman Charles Boustany (R-LA) has called for the U.S. to move to a territorial tax system and a patent box. These measures would result in the loss of hundreds of billions of dollars in tax revenue and result in an unprecedented erosion in the U.S. corporate tax base.

The OECD plan represents a growing consensus on international tax avoidance, and the U.S. should certainly support it. But Congress does not need the international community to act now to stop tax avoidance by U.S. multinationals and raise much needed revenue.

The best way to shut down offshore shenanigans once and for all would be for Congress to end the deferral of U.S. taxes on foreign profits by requiring that companies pay the same tax rate at the same time on their foreign and domestic profits. Barring that, Congress could pass the Stop Tax Haven Abuse Act, which takes aim at a number of the worse gaps in the offshore tax system. Given that countries throughout the world are acting to curb offshore tax avoidance, now is the perfect time for the U.S. to keep pace.