New Study Details Extent Of Corporate Tax Avoidance

I just wanted to quickly follow up on yesterday's post that showed even investors are getting worried about corporations extreme tax avoidance strategies.  On Monday, the Economic Policy Institute released a study on corporate taxes and the results are fascinating. Here are a few highlights:

Corporate profits are way up, and corporate taxes are way down. In 1952, corporate profits were 5.5 percent of the economy, and corporate taxes were 5.9 percent. Today, corporate profits are 8.5 percent of the economy, and corporate taxes are just 1.9 percent of GDP.

Corporations used to contribute $1 out of every $3 in federal revenue. Today, despite very high corporate profitability, it is $1 out of every $9.

Many corporations pay an effective tax rate that is one-half (or less) of the official 35 percent tax rate.

As of 2015, U.S. corporations had $2.4 trillion in untaxed profits offshore. Another study, looking at S&P 500 companies, found they held $2.1 trillion as of 2014. This roughly five-fold increase from $434 billion in 2005 stems largely from anticipation of a tax holiday.

Just two industries—high-tech and pharmaceutical/health care—hold half the untaxed offshore profits.

Just 50 companies hold over 75 percent of untaxed offshore profits. Ten companies hold 39 percent of these profits. Just four companies—Apple, Pfizer, Microsoft, and General Electric—hold one-quarter of all untaxed offshore profits.

About 55 percent of U.S. corporate offshore profits are in tax-haven countries. Corporations pay an average tax rate of between just 3.0 percent and 6.6 percent on profits in tax havens.

U.S. corporations pay very low tax rates—6 percent to 10 percent, mainly to foreign governments—on all their offshore profits. A tax break known as “deferral” allows them to delay paying U.S. taxes until the profits are repatriated to the parent corporation in the United States.

The U.S. Treasury will lose $1.3 trillion over 10 years—about $126 billion a year—due to the deferral of taxes on offshore profits.

Income shifting—making profits earned in the United States look as if they were earned offshore—erodes our corporate tax base by over $100 billion a year. U.S. corporations increasingly manipulate transfer pricing and bilateral tax agreements to make their U.S. profits appear to be earned in tax havens.

Corporations owe up to $695 billion in U.S. taxes on their $2.4 trillion in offshore profits. Having paid just 6 percent to 10 percent in taxes to foreign governments, they owe between 29 percent and 25 percent in U.S. taxes, based on a 35 percent tax rate with foreign tax credits.

As a point of reference, that $695 billion would have completely eliminated the annual deficit for 2015 and we would have had enough left over to cut 2016's deficit in half. Or we could have used the entire $695 billion to eliminate 3.5% of our national debt. Of course, these big tax cheating companies are complaining that the reason they are deferring all this income is because US corporate tax rates are too high. Even President Obama has fallen in line with this myth and is offering to cut corporate taxes to 14% which would result in a huge tax giveaway to just these dozens of companies. Hopefully, progressive Democrats will stand firm and not let these companies off the hook for the money they owe.