Corporate Inversions: The Great American Tax Dodge

corporate inversionsby Ralph Scharnau

Most of us have seen the ads where large, multinational.corporations proudly proclaim a deep devotion to American workers and communities. But rather than taking responsibility for supporting the workers and communities that create the conditions for their corporate profits, a record number of big businesses are deserting America.

One way corporate deserters forsake their country comes through a device called corporate inversions. Inversions occur when American corporations buy foreign companies and reincorporate overseas in countries with lower corporate income tax rates.

In the past ten years, 47 major corporations have reincorporated abroad to avoid paying U.S. taxes. These moves will cost the U.S. Treasury an estimated $20 billion over the next decade.

Yet, the companies’ moves exist only on paper. They still operate in America with the same executives and the same stores or facilities. They still make money here, hire workers here, and connect with customers here. The companies still receive all the benefits of U.S. infrastructure, police and fire protection, legal system, and military protection. The U.S. still educates its work force and subsidizes its low-wages with food stamps, Medicaid, and other government services.

A recent example of corporate inversion involves Burger King’s announced intention to buy Canadian food chain Tim Hortons and move its headquarters to Canada as a tax-dodging tactic. On the other hand, Walgreens, the drugstore giant, shelved its plans to dodge $4 billion in taxes in the next five years by changing its corporate address to Switzerland. Walgreens reversed course when outraged consumers protested at its stores, on the internet, and threatened a boycott.

The current wave of planned or announced inversions erode the nation’s corporate tax base and shift more of the tax burden to small businesses and average taxpayers. And we already have a tax system that favors unearned income from capital over earned income from wages.

In the political debate over taxes, conservatives argue that the inversions and other games with offshore subsidiaries prove that the U.S. federal tax rate of 35 percent is the highest among industrialized countries. Yet, when all of the existing tax deductions, write-offs, credits, and other maneuvers are factored in, America’s effective corporate tax rate of 27% is comparable to that of the other large economies of the world.

Besides, many corporations pay at a rate of less than 20 percent. Between 2008 and 2012, twenty-six corporations, including General Electric, Boeing, and Verizon, paid no U.S. income taxes. Big corporations already dodge $90 billion a year in income taxes by shifting profits to offshore tax havens, often no more than a post office box.

By manipulating the system, big corporations and the wealthy pay a smaller share of their income in taxes than working class families and small businesses. The share of profits corporations spend on taxes stands at a record low while those profits reach record highs.

More and more modern U.S. corporations reward large investors and top executives with income that once was spent on employees, training, and research. We continue to witness the redistribution of income from wages and salaries to investments. Meanwhile ordinary taxpayers carry more and more of the burden of paying taxes.

The Obama administration has taken initial steps to address corporate tax inversions. Two weeks ago, the Treasury Department announced rules aimed at making it more difficult for American companies to lower their tax bills by relocating overseas and wiping out the benefits for those that do. Some progressive members of Congress have introduced reform legislation as well.

The United States faces huge challenges in building an economy that works for all of us. This will require us to hold corporations accountable for their responsibilities to our workers and our communities.

Ralph Scharnau teaches U.S. history at Northeast Iowa Community College, Peosta. He holds a Ph.D. from Northern Illinois University. His publications include articles on labor history in Iowa and Dubuque. Scharnau, a peace and justice activist, writes monthly op-ed columns for the Dubuque Telegraph Herald.


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