The amount of money U.S. corporations hold overseas in order to avoid paying U.S. taxes has doubled since 2008, at the height of the financial crisis. According to private research firm, Audit Analytics, U.S. multinationals held $2.1 trillion in profits overseas last year. The report prompted Senate Finance Committee Chairman Ron Wyden to call for reforms in corporate tax law, which would be necessary because – as much as critics of corporate America may not approve of the tactics – there is nothing illegal about them.
There is, however, agreement in both political parties that the laws need to be reformed. Just what shape those reforms should take varies between Republicans and Democrats, but there is agreement that some changes would be beneficial.
“If there’s anything - anything - that Republicans and Democrats agree on, it’s the need for corporate tax reform,” said Yahoo Finance Editor-in-Chief Aaron Task. “President Obama and Mitt Romney both talked about that during the campaign last year and you hear from both sides that it’s something they want to do, so maybe it’s a point of agreement.”
Task also said it’s not surprising that corporate profits have doubled since 2008, considering the fact that that was the recent bottom of the market during the financial crisis. “The stock market has doubled so it’s not really so much of a surprise that the overseas profits of these corporations have doubled as well, not that it’s a one-to-one correlation.”
According to the survey by Audit Analytics, General Electric (GE) had the most earnings held overseas at $110 billion. GE is followed by Microsoft (MSFT), Pfizer (PFE), Merck (MRK) and Apple (AAPL) when it comes to the most money parked overseas. Corporations are quick to point out that they’re not breaking any laws by holding profits outside the country to avoid paying U.S. taxes.
“I go back to when Tim Cook appeared before Capitol Hill about this issue and he was being grilled by Congressmen about why Apple’s keeping all this money overseas and he was basically like, this is the law; you guys made the law; we’re keeping with the law so don’t penalize me for following the law,” said Task. “The law was set up in a ham-fisted way and it encourages corporations to do this, so of course they’re going to do it.”
A recent Senate report also highlighted the U.S. taxes that Caterpillar (CAT) is avoiding by taking advantage of tax laws that allow U.S. multinationals to invest profits abroad and delay paying U.S. taxes.
“I’m no huge fan of corporations broadly speaking or the idea that they could park money overseas, but this is Congress’s job - to make the laws and if the law isn’t working or they don’t like what corporations are doing, then change the law or stop complaining about it,” said Task. “Basically, that’s what it comes down to.”
- corporate tax law