It doesn’t stop there, however. These multinationals are then able to subtract the taxes they pay to foreign governments from what they owe the IRS. If that amount is more than the 10.5 percent they would typically have to pay, they owe the US government nothing.
This credit applies to people too. In 2013 I spent a few weeks working in Greece, so I paid a small amount of Greek income taxes and deducted that from my US income tax bill. But unlike multinational corporations, individuals still have to pay the full US tax rate on foreign earnings. The credit I got in the United States was exactly equal to what I paid in Greece, so I was not any better off financially.
It gets even worse, though! Under the current tax system, corporations actually get a special accommodation for “tangible assets” held overseas. The US gives them a tax discount for what is considered the routine rate of return for physical assets, like factories and equipment, held overseas. For now, that rate of return is set at 10 percent, meaning that for every $10 million in tangible assets a company has overseas, the first $1 million it earns in profits every year is tax-free.
Basically, the more equipment and factories a company has overseas, the more tax-free profit it can earn. This not only gives multinational companies a tremendous tax advantage over companies that manufacture in the US, it also hurts American workers.
Take the hundreds of workers that General Electric laid off in 2018 when it closed its plant in Salem, Virginia and transferred their positions to a new, $200 million factory in Pune, India. Those workers didn’t just have to worry about cheaper competition in other countries, they also had to worry about the United States government literally subsidizing their jobs being shipped overseas. And now General Electric, thanks to its investment in Pune, can claim about $20 million in profits a year completely tax-free.
When you combine these loopholes with a cadre of other tax breaks, it allows many companies to completely avoid paying their federal dues. How are domestic companies and mom and pop operations supposed to compete?
Corporations like Apple, Facebook, Google, and Microsoft now send their profits over to places like Ireland and pay some taxes to foreign governments, completely disinvesting in our country where their profit was originally made. I’m glad that Dublin has extra money to recobble their streets, but here in America, our infrastructure is in grave need of repairs.
Most of these advantages became law thanks to the 2017 Trump tax bill, the Tax Cuts and Jobs Act. For CEOs to claim that they can’t compete internationally without the tax breaks they’ve had for less than four years is ridiculous, especially when you consider that in the years before the Trump tax bill, US corporations still booked over $2 trillion in profits annually.
The Biden corporate tax plan would end all of these built-in advantages for multinational corporations and put every company in the US, large and small, on a level playing field when it comes to taxes. That’s not anti-business, that’s just fair.
Morris Pearl is the chair of the Patriotic Millionaires, a former managing director at BlackRock, Inc., and the co-author of Tax the Rich! How Lies, Loopholes, and Lobbyists Make the Rich Even Richer.
Article source: https://www.cnbc.com/2021/06/02/op-ed-biden-plan-to-close-tax-loopholes-for-corporations-isnt-anti-business-.html