Tag: Archive

January 1, 2013 06:04 PM | Permalink |

The tax deal negotiated between Vice President Joe Biden and Senate Minority Leader Mitch McConnell and approved by the Senate early on January 1 would save less than half as much revenue as President’s Obama’s original proposal.

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December 20, 2012 04:27 PM | Permalink |

The “Plan B” tax proposal that House Speaker John Boehner plans to put to a vote in the House of Representatives would allow the richest one percent of Americans to pay $36,000 less in federal income taxes, on average, than they would pay under President Obama’s most recent proposal. Under Plan B, the poorest three-fifths of Americans would pay more in federal income taxes, on average, than they would pay under the President’s latest plan.

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December 13, 2012 11:24 AM | Permalink |

Read the PDF (Contains Appendix with Numbers for all 290 Companies)

Among the Fortune 500 corporations, 290 have revealed that they, collectively, held nearly $1.6 trillion in profits outside the United States at the end of 2011. This is one indication of how much they might benefit from a so-called “territorial” tax system, which would permanently exempt these offshore profits from U.S. taxes.

Just 20 of the corporations — including household names like GE, Microsoft, Apple, IBM, Coca-Cola and Goldman Sachs — held $794 billion offshore, half of the total. The data are compiled from figures buried deep in the footnotes of the “10-K” financial reports filed by the companies annually with the Securities and Exchange Commission.

The appendix includes the full list of 290 corporations and the size of their offshore profits in each of the last three years, as well as the state in which their headquarters is located.

Huge Existing Loophole for Shifting Profits Offshore Would Be Expanded by a “Territorial” System

The U.S. corporate income tax allows these corporations to indefinitely “defer” paying U.S. corporate taxes on these profits until they are brought to the U.S. (that is, until these profits are “repatriated”). Under the “territorial” tax system promoted by many corporate lobbyists in Washington today, U.S. corporations would never have to pay U.S. corporate taxes on these profits.

There is strong evidence that corporate profits are taxed less in the U.S. than they are in most other countries. CTJ’s major 2011 report on the Fortune 500 corporations that were consistently profitable from 2008 through 2010 found that two-thirds of those with significant foreign profits actually paid higher taxes in the foreign countries where they operated than they paid in the U.S.1

In other words, even as corporate lobbyists decry the U.S.’s relatively high statutory corporate tax rate of 35percent, the effective corporate tax rate (what corporations actually pay in taxes as a percentage of their profits) is far lower for most corporations — lower than what they pay when they do business in other countries.

So why should anyone care about the amount of profits held offshore by U.S. corporations? The answer lies not so much in the countries where U.S. corporations are doing real business, producing real products and competing in foreign markets. The real concern is a small number of (mostly tiny) countries and territories where almost no real business is conducted but where corporations park their U.S. profits to avoid taxes.

These countries have no corporate tax at all (or an extremely low one) and have thus earned the title of “offshore tax havens.” U.S. corporations engage in convoluted transactions to make what are truly U.S. profits appear to be profits generated by a subsidiary corporation in one of these tax havens, so that they can indefinitely defer U.S. taxes and not pay foreign taxes either. In many cases the transaction only exists on paper and the subsidiary corporation is
little more than a post office box in the Cayman Islands or Bermuda or some other tax haven.

For many U.S. corporations, the majority of “offshore” profits are really U.S. profits that have been shifted to offshore tax havens in this manner. Most corporations provide very little detail that would indicate whether their offshore profits result from real business operations abroad or from shifting profits (on paper) to tax havens. But, as explained in a previous CTJ report, 47 of the corporations revealed how much they had paid in foreign taxes on their offshore profits, and ten corporations, representing over a sixth of the $1.6 trillion in unrepatriated profits, revealed that they paid practically nothing in taxes to any government on their offshore hoards.2 This, of course, reasonably leads to the conclusion that the profits are stashed in a country with no (or an extremely low) corporate income tax (in other words, an offshore tax haven).

The problem of offshore tax havens cannot be solved by lowering the U.S.’s statutory corporate income tax rate (or even its effective corporate income tax rate). Corporate lobbyists claim that the U.S.’s relatively high tax rate is what drives companies to shift profits offshore and that lowering our rate is the answer. The reality is that reducing the U.S. rate is futile because it will never be as low as the rate of most tax havens (which is zero percent).

Nor can this problem be solved by adopting a “territorial” tax system. In fact, a territorial tax system would increase the incentives for abuse. If allowing deferral of U.S. taxes on foreign profits has already encouraged U.S. multinational corporations to shift profits offshore, then eliminating U.S. taxes on foreign profits would logically increase that incentive.3

The real solution is to eliminate the existing tax incentives to shift profits into tax havens — by repealing deferral.4 U.S. corporations would continue to receive a credit for any foreign taxes they pay, to ensure against double-taxation. But there would no longer be any tax incentive for U.S. corporations to shift profits to a country with a lower tax rate, because the IRS would simply require them to pay the difference between the U.S. tax rate and the foreign country’s tax rate (assuming the latter is lower).

In other words, a U.S. corporation would not benefit from pretending that most of its profits are earned by a post office box in the Cayman Islands.

 

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1- Citizens for Tax Justice, “Corporate Taxpayers & Corporate Tax Dodgers, 2008-2010,” November 3, 2011, page 10. http://ctj.org/corporatetaxdodgers/

2- Citizens for Tax Justice, “Which Fortune 500 Companies Are Sheltering Income in Overseas Tax Havens?” October 17, 2012. https://ctj.sfo2.digitaloceanspaces.com/pdf/offshoreincome.pdf

3- For a fact sheet explaining these issues, see Citizens for Tax Justice, “Why Congress Should Reject A ‘Territorial’ System and a ‘Repatriation’ Amnesty: Both Proposals Would Remove Taxes on Corporations’ Offshore Profits,” October 19, 2011. https://ctj.sfo2.digitaloceanspaces.com/pdf/corporateinternationalfactsheet.pdf For a report with more detail, see Citizens for Tax Justice, “Congress Should End ‘Deferral’ Rather than Adopt a ‘Territorial’ Tax System,” March 23, 2011. https://ctj.sfo2.digitaloceanspaces.com/pdf/internationalcorptax2011.pdf

4- A bill before Congress that would repeal deferral is the Bipartisan Tax Fairness and Simplification Act of 2011, sponsored by Senators Ron Wyden (D-OR) and Dan Coats (R-IN). This bill could use significant improvements (for example, it does not generate sufficient revenue) but it would create a system in which U.S. corporations would receive no tax advantage from shifting jobs or profits offshore.

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November 30, 2012 04:35 PM | Permalink |

The revenue goals set out by President Obama are alarmingly low, but unfortunately most proposals circulating around Washington today would fall far short of them. The $1.6 trillion of revenue that the President proposes to save over the next decade depends on allowing the Bush-era reductions in tax rates to expire for high levels of income and limiting deductions and other breaks. Doing one or the other will not raise enough revenue.

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November 2, 2012 02:53 PM | Permalink |

The Making Work Pay Credit, a tax credit that was in effect in 2009 and 2010, is better targeted towards low- and middle-income families than the payroll tax cut in effect today, at half the cost. It is dramatically more targeted to these families than the Bush tax cuts, at just over a sixth of the cost. Prominent Washington figures and media outlets have suggested in recent days that either the payroll tax cut might be extended or the Making Work Pay Credit might be revived.

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October 24, 2012 03:41 PM | Permalink |

Presidential candidate Mitt Romney has proposed to make permanent the Bush tax cuts without offsetting the costs and also enact new, additional tax cuts that would be paid for by limiting tax expenditures (special breaks or loopholes in the tax code). Romney recently suggested that his new tax cuts could be paid for by limiting itemized deductions to $25,000 per tax return, which we estimate would offset just 36 percent of their costs. The percentage of Romney’s new tax cuts offset by this limit on itemized deductions would vary dramatically by state.

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October 17, 2012 10:28 AM | Permalink |

(Read the PDF)

Ten Corporations Admit Paying Little Tax on Offshore Income; More Likely Do the Same

Earlier this year, the United States Congress debated creating a “repatriation tax holiday” – an amnesty for offshore corporate profits – that would have provided a special lower corporate tax rate for multinational companies that bring overseas profits back to the United States. Some observers have argued that many multinationals have been sheltering their profits in overseas tax havens, based on the hope that Congress will repeat the same “tax holiday” experiment it previously undertook in 2004. A new CTJ analysis of the financial reports of the Fortune 500 companies shows that 285 of these corporations had accumulated more than $1.5 trillion in overseas profits by the end of 2011, and there is evidence that a significant portion of these profits are located in tax havens.

In particular, our analysis shows that ten corporations, representing over a sixth of the $1.5 trillion in unrepatriated profits, reveal sufficient information to show that they have paid little or no tax on their offshore profit hoards to any government. That implies that these profits have been artificially shifted out of the United States and other countries where the companies actually do business, and into foreign tax havens.

For hundreds of other companies with overseas cash holdings, Congress currently has little information at its disposal that could tell policymakers how much of these companies’ unrepatriated profits are, in fact, anything more than earnings artificially shifted into tax havens. Before taking any action to deal with these unrepatriated profits, policymakers should demand full disclosure about the taxes that have been paid, or not paid, on these offshore profit hoards.

Fortune 500 Companies Reported $1.5 Trillion in Unrepatriated Foreign Income in 2011

For 2011, most of the Fortune 500 biggest corporations published information, buried deep in their annual “10-K” financial reports, that discloses the amount of unrepatriated income the companies are “indefinitely” reinvesting abroad. CTJ has tabulated this information for each of the 285 companies that provided it in 2011. The table on this page and the detailed appendix at the end of this paper summarize this information. CTJ’s analysis shows that these 285 companies collectively reported $1.584 trillion in unrepatriated income. But this income is concentrated very heavily in the hands of a small number of companies: just 20 corporations accounted for $794 billion of this income—just over half the reported total—and the top 50 companies account for about three-quarters of the total. At the other end of the spectrum, the 100 corporations with the smallest reported unrepatriated income amounts represented just 2 percent of the total.

Many Companies Have Paid Little or No Foreign Tax On This Unrepatriated Income

For policymakers interested in ensuring that these profits are brought back to the U.S., one important question is whether the companies in question have paid any foreign income tax on these profits. This is important because the normal U.S. federal income tax on these profits when they are repatriated is not simply 35 percent. It’s 35 percent minus any income taxes paid to foreign jurisdictions.

For example, if a company’s unrepatriated foreign profits were earned in a country with a 25 percent tax rate, the normal tax upon repatriation to the U.S. would be 10 percent. But a company that has shifted its profits to a tax haven country with a zero percent tax rate would face the full 35 percent U.S. tax rate on repatriated income.

Astonishingly, policymakers generally have no way to know how much of the $1.584 trillion in Fortune 500 companies’ unrepatriated income is stashed in tax havens. This is primarily because only 47 of the 285 companies with foreign profit hoards were willing to disclose, in their annual 10-K reports, even a rough estimate of the amount of income tax liability they would face upon repatriation. Although accounting standards require such disclosure, many companies hide the facts behind a statement that estimating the U.S. tax on repatriation is “not practicable.”

Notably, many of the 47 disclosing companies estimate that repatriating their offshore profits would result in a tax bill quite close to the statutory federal rate of 35 percent—indicating that these companies have paid very little foreign income tax on these earnings. In particular, the table below shows that 10 of these companies, with total unrepatriated profits of $209 billion, would collectively pay a 33 percent U.S. tax rate on these profits if they were brought back to the U.S. The most likely explanation of this is that most of these earnings represent U.S. profits that have been shifted overseas to offshore tax havens such as Bermuda and the Cayman Islands.

Very Significant Revenues are at Stake

It’s impossible to know how much income tax would be paid, under current tax rates, upon repatriation by the 285 Fortune 500 companies that have admitted holding profits overseas but have failed to disclose how much U.S. tax would be due if the profits were repatriated. But if these companies paid at the same 27 percent average tax rate as the 47 disclosing companies, the resulting one-time tax would total $328 billion for these 235 companies. Added to the $105 billion tax bill estimated by the 47 companies who did disclose, this means that taxing all the “permanently reinvested” foreign income of the 285 companies could result in $433 billion in added corporate income tax revenue.

Conclusion

It’s hardly news that U.S. multinationals are sheltering income overseas. Advocates of a new repatriation holiday cite the presence of $1.5 trillion in unrepatriated income as an indication that Fortune 500 companies’ profits are “trapped” overseas, and that these companies would bring back much of this income to the U.S. if our corporate tax rate were reduced as part of a “repatriation tax holiday.” At the same time, advocates of loophole-closing tax reform see these huge overseas profit hoards as an indication that multinationals are systematically shifting U.S. income artificially to tax havens.

But, as CTJ’s analysis of Fortune 500 companies’ financial documents shows, in most cases policymakers simply don’t have the tools at their disposal to assess the truth of these arguments. There is certainly evidence that many of these companies are sheltering profits in tax havens, but for the vast majority of these companies their financial reports reveal nothing on this point. Before acting to resolve the thorny issues surrounding repatriation and other international tax changes, Congress should first demand access to basic information about whether the companies accumulating large amounts of profits offshore have paid any taxes on this income.

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October 3, 2012 01:07 PM | Permalink |

Read the PDF version of this document.

As President Barack Obama and former Massachusetts Governor Mitt Romney face off in their first debate, a number of big-picture questions about tax policy remain unanswered by either candidate.

Given the budget deficit, why should we extend all of the Bush tax cuts (as Romney proposes) or most of the Bush tax cuts (as Obama proposes)?

■ The Congressional Budget Office estimates that a full extension of the Bush tax cuts, which Governor Romney supports, would cost about $5.2 trillion over ten years, including interest, while President Obama’s proposal to extend most, but not all, of those tax cuts will cost about $4.3 trillion over ten years, including interest.

■ That means if Congress enacts one of these approaches, we lose either $5.2 trillion or $4.3 trillion, compared to current law (compared to what would happen if Congress does nothing).

Given that the Bush tax cuts, taken together, disproportionately benefit the rich, why should we extend all or most of them?

■ Citizens for Tax Justice estimates that the richest one percent of Americans would receive 32 percent of the benefits of a full extension of the Bush tax cuts, which Governor Romney supports.

■ CTJ finds that the richest one percent would receive 11 percent of the benefits from Obama’s proposal to extend most, but not all, of the Bush tax cuts (and the other tax cuts Obama wants to extend).

■ By way of comparison, the poorest fifth of Americans would get just one percent of the benefits from the Republican approach and just 3 percent of the benefits from Obama’s approach.

Why have neither Obama nor Romney proposed to end the tax loophole that is targeted to the richest one percent of taxpayers — the special, low tax rate for capital gains?

■ Romney proposes to enact new tax cuts (on top of extending the Bush tax cuts) but claims that he can offset the costs by limiting tax expenditures (tax deductions, exclusions, credits and other special breaks). But Romney pledges to retain the most unfair tax expenditure of all, the lower rate for capital gains, which allows wealthy investors like himself and Warren Buffett to pay a lower effective tax rate than many working people.

■ Meanwhile, Obama proposes to limit the value of each dollar of deductions and exclusions for the rich to 28 cents, and he would impose a minimum tax on people making more than $1 million. Both measures are relatively complicated and neither would entirely eliminate situations in which wealthy investors pay a lower effective tax rate than wage-earners.

■ The most straightforward reform would be to eliminate the most unfair tax expenditure by repealing the special rate for capital gains and simply taxing all personal income under the same tax rates. CTJ estimates this would raise at least $533 billion over a decade.

Why does neither candidate propose to raise needed revenue from corporate tax reform?

■ President Obama has proposed to close corporate tax loopholes, while Governor Romney has been unclear on this point. But any revenue saved from corporate loophole-closing under either candidate would be given back to corporations in the form of a reduction in their tax rate. Both candidates have proposed to reduce the official 35 percent corporate income tax rate (to 28 percent in the case of Obama and 25 percent in the case of Romney).

■ Corporations claim that they are burdened by the statutory tax rate of 35 percent, but their effective tax rate (the percentage of profits they actually pay in taxes) is usually far lower than that because they use loopholes to shield much of their profits from taxes.

■ Each of the reasons used by corporate lobbyists to argue for lower taxes is easily refuted. For example, they claim that the corporate tax is ultimately borne by the workers, but if that was true, then corporations wouldn’t bother lobbying Congress to lower it.

■ An obvious way to address our fiscal problems is to close corporate tax loopholes and use the revenue to reduce the deficit or pay for education, infrastructure or other investments.

 

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September 20, 2012 08:58 AM | Permalink |

Read the full report.

The tax break that allows Warren Buffett, Mitt Romney and other extremely wealthy Americans to pay a smaller share of their income in taxes than many middle-income people is the special low income tax rate for capital gains, which are the profits made from selling assets for more than they cost to purchase. This tax break was made more generous and expanded to apply to stock dividends as part of the Bush tax cuts.

This report addresses several points about capital gains:

1) The capital gains tax preference mainly benefits the richest one percent of Americans.

2) It reduces revenue, despite claims to the contrary.

3) It gives rise to tax shelters and makes the tax code overly complicated.

4) These problems will be mitigated, but certainly not eliminated, by the reform of the Hospital Insurance tax coming into effect in 2013.

5) The way to fully resolve the problems described here is to eliminate the special, low personal income tax rates for capital gains so that they are taxed just like any other income.

Read the full report.

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September 13, 2012 09:50 AM | Permalink |

Read the PDF.

Continental Resources, an American oil company that is particularly active in North Dakota and Montana, has enjoyed pre-tax U.S. profits of $1,872 million over the past five years, but paid a mere $40 million in federal corporate income taxes over that same period. Continental Resources has enjoyed an effective federal corporate income tax rate of just 2.2 percent over the past five years.

These figures are taken directly from the company’s public filings with the Securities and Exchange Commission (SEC).

What makes this particularly noteworthy is that Harold Hamm, Continental Resources’ Chairman and CEO, as well as Mitt Romney’s top energy advisor, has submitted testimony to the House Energy and Commerce Committee in which he claims that his company’s effective corporate income tax rate is 38 percent.1 This figure does not reflect reality.

The figures from his company’s SEC filings make it clear that Hamm’s 38 percent calculation includes both “current” taxes, which are the taxes actually paid each year by the company, and “deferred” taxes, which are taxes the company has not paid, but might pay at some point in the future.

Hamm calculates his company’s 2011 effective income tax rate to be 38 percent by counting taxes the company did not pay. Besides the $13 million of “current” income taxes that the company did pay, Hamm also wants to count $245 million in “deferred” income taxes, which the company didnot pay. Combined, these paid-and-not-paid taxes were 38 percent of Continental’s 2011 pre-tax income of $687 million. But that’s a meaningless figure. The income taxes the company actually paid in 2011 — a mere $13 million — equaled just 1.9 percent of its 2011 pre-tax profits.

Any deferred income taxes that are actually paid will be reported as “current” taxes in the year that they are paid. At that point (if ever), CTJ will automatically include them in its calculation of the company’s effective corporate income tax rate.

This ridiculously low effective income tax rate was not unique to 2011. In fact, Continental Resources paid just $40 million, or 2.2 percent of its profits, in “current” federal income taxes over the 2007-2011 period.2

1 “American Energy Independence within a Decade and The Policies Necessary to Achieve it,” testimony of Harold Hamm, Chairman and CEO, Continental Resources, Inc. September 13, 2012.
http://energycommerce.house.gov/sites/republicans.energycommerce.house.gov/files/Hearings/EP/20120913/HHRG-112-IF03-WState-HammH-20120913.pdf

2 Companies sometimes point to their “cash income taxes paid,” which is a figure in their public filings that some argue is closer to what companies actually pay in income taxes in a given year. Over the past five years, Continental Resources’s “cash income tax paid” have been essentially identical to its “current” tax figures.

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