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The Great American Tax Heist


The Great American Tax Heist

Robert Borosage

Tax attorneys and corporate accountants use a blizzard of tax loopholes to book US-earned profits in subsidiaries located in offshore countries with minimal or no taxes.

With profits near record levels, the companies have all the money they need for new investments. Most don’t see enough demand to justify expansion. Instead, as Bloomberg reported, Fortune 500 companies are spending more money on stock buybacks and dividends than they earn in operating profits. This boosts the price of their stock and, not incidentally, the value of their CEOs’ stock options.


What this article (and most similar ones) fail to note is that there is a fundamental difference between the US tax system and almost every other country. The US is one of a handful of countries that taxes worldwide income, regardless of where it is earned. Almost all other countries only tax income earned within their borders. If we were the UK, or an EU country, or most Asian countries, income earned by US companies abroad wouldn’t be subject to US taxes in the first place.


Who knew that there was so much money being earned in the Cayman Islands?


That means nothing when the large corporations never pay their taxes anyway!


What you fail to note is that everyone of the OECD countries you are talking about have strict rules on what is defined as territorial income - so companies can’t just move money to low tax countries via sham subsidiary companies like U.S. companies can. If we had those anti-tax base erosion rules (especially rules about whether the income was active or passive) then a territorial system would work fine. Tax proposals before Congress seem to hand companies the benefit of lower rates without changing the base-erosion rules. That’s just a complete giveaway to companies and adds to the burden on working individuals.


Yep - the word “earned” is consistently misused by conservatives in this context.


I think that’s a much more logical system. Define it properly and tax it accordingly. What we have now is the worst of all worlds - “universal” taxation, and a structure that encourages building loopholes.

Although in practice, I’d say the OECD rules don’t seem to be doing much good - notice how Ireland seems to be incurring the wrath of the entire EC these days