The United States has the highest marginal corporate tax rate in the world, at 39.2%.
Corporations, Wall Street, Mitt Romney and even President Obama all argue that rate is too high for U.S. companies to be competitive in the global economy.
[Related: America Is #1...In Corporate Taxes]
That would be the case if corporations paid such high rates but often they don't. Take Microsoft. The company avoided at least $6.5 billion in taxes using transactions with subsidiaries in Puerto Rico, Ireland, Singapore and Bermuda that were perfectly legal, according to the Senate's Permanent Subcommittee on Investigations, which held a hearing Thursday on corporate tax avoidance.
Carl Levin (D-Michigan), chairman of the subcommittee told reporters, "These loopholes and abuses exact a tremendous cost…What these gimmicks do is shift the burden of taxes onto citizens and business who don't use armies of lawyers and accountants."
"The scandal is the law," says David Cay Johnston, a Pulitzer Prize-winning reporter and author of "The Fine Print: How Big Companies Use 'Plain English' to Rob You Blind."
He told The Daily Ticker: A 1909 law requires that companies not hold more cash than needed to reasonably run their business. If they don't re-invest the extra cash into the business or pay dividends, they face a 15% penalty. President Reagan added a loophole to the law allowing companies to avoid the 15 percent penalty if they hold the extra funds offshore. Using that loophole, companies like (MSFT) and Hewlett-Packard (HPQ) can borrow against some of those foreign assets ehole also reducing their tax liability.
Using another legal corporate tax loophole, 2700 companies in 19 states pocketed state income taxes withheld from employees pay, according to Johnston. He says such tax breaks cost the average American family of four $900 a year.
General Electric (GE), Goldman Sachs (GS) and Procter & Gamble (PG) have these deals as do some foreign firms, including Siemens, Electrolux and European and Japanese banks. Illinois is a prime example of a state that uses this tax tactic to persuade businesses to stay within its borders. In the book Johnston writes:
"Ford got a deal in 2007 by threatening to close an automobile assembly plant. In 2009, when the economy was in the worst shape in eight decades, Chrysler and Mitsubishi used threats of assembly plant closings to get similar deals....
Navistar, maker of big diesel trucks for industry and the military, threatened to go to Alabama or maybe Iowa. In return for staying put, Navistar will pocket almost $65 million....
The big winner, though, was Motorola Mobility, the cell phone maker. Just for promising not to move out of state and take three thousand jobs with it, Motorola gets to siphon $136 million from the paychecks of its well-paid high-tech workers. As if to make this transaction all the more interesting, Motorola Mobility agreed to be acquired by Google soon after the state made the big tax deal."
The CEO of Motorola was then paid upwards of $60 million to walk away from the company.
Johnston calls all these tax practices examples of "corporate socialism" which shifts the tax burden from corporations to ordinary citizens.
"The rest of us have to pick up burden by paying higher taxes or getting less government services or the government takes on more debt," says Johnston.
Senator Levin says, "We cannot close our buidget gap without more revenue," including more revenue from corporations. Corporate taxes currently account for less than 10% of federal revenues, according to the nonpartisan Tax Policy Center.
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