Dear <<First Name>>,
With the public focused on gun violence and the media tracking presidential hopefuls, the corrupting influence of Mega Money in our politics has slipped from view. But MONEYPOLITICS has a direct effect every day on public policies and our lives.
For one example, check our story below.
We have much more on our civic action website, reclaimtheamericandream.org. You’ll find some surprising good news in our progress reports and success stories. Join us.
… and take heart. We can Fix Our Democracy,
Hedrick Smith
The Price We Pay for Corporate Money in Campaigns
Washington – If you wonder what price we all pay for corporate money flooding political campaigns ($1.7 billion in 2014), see Exhibit A — the decision by pharmaceutical giant Pfizer to renounce its U.S. citizenship and become an Irish company in order to duck U.S. corporate income taxes.
Pfizer made no secret that its blockbuster $152 billion merger with Allergan, based in Dublin, was aimed at taking advantage of Ireland’s new 6.3% tax rate, well below the effective tax rate that U.S. multi-nationals pay at home.
As President Obama commented, such deals may seem unpatriotic but they’re legal. Pfizer’s is but the latest of 47 so-called “corporate inversions,” in Wall Street lingo, consummated over the last decade. American companies flip their legal home address without changing their CEO or their basic operations through foreign mergers that will cost Uncle Sam an estimated $41 billion in lost tax revenues over the next decade, dumping that burden on average taxpayers.
Steep Drop in Corporate Share of Tax Revenues
Inversions, promoted by Wall Street banks that pocketed $1 billion in fees, are the newest gimmick in a long-term trend that has eroded America’s corporate tax base. Since the 1950s, the corporate share of federal tax revenues has fallen steeply from over 30% to just 10% percent today – thanks, not only to a lower corporate tax rate but to $1.2 trillion in corporate tax loopholes passed by Congress.
Foreign tax havens have become the new norm for Corporate America. Major multi-nationals find financial hideaways like Bermuda, Puerto Rico or the Cayman islands where they can set up shell affiliates, often little more than an small office with a big bank account, where they can stash their overseas profits and escape having to pay U.S. taxes.
In 2014, that practice was so pervasive that nearly three-fourths of Fortune 500 companies booked profits to foreign tax havens, according to a study by Citizens for Tax Justice and US PIRG. In all, U.S. companies were hoarding $2.1 trillion in profits offshore – enough to generate $620 billion in U.S. taxes if American companies had brought all their earnings back home to the United States.
Apple Transfers Patents to Escape U.S. Taxes
Even on earnings generated inside the U.S., companies can hop profits over borders with accounting gimmickry. High Tech companies like Apple shift ownership of their prime patents to overseas affiliates. Even though new technology for Apple iPhones and iPads is mostly invented in California for obtaining U.S. patents, Apple says the patents belong to its subsidiary in low-tax Ireland, so that’s where the profits flow and where taxes are paid.
Ditto, Google, Amazon, Microsoft, Gilead, Starbucks, FedEx, Pepsico and many others. Starbucks gave ownership of its secret formulas for roasting coffee to a subsidiary in the Netherlands and got a sweetheart tax deal. Such an outlandish deal, in fact, that European regulators said it violated EU rules on fair competition. So they ordered Starbucks to pay the Dutch government $34 million in back taxes.
Caterpillar, which makes tractors and heavy earth-movers in Illinois for the global market, concocted a scheme that saved it $2.4 billion in U.S. taxes by having its Swiss subsidiary send out billing invoices to its customers worldwide. So even though Caterpillar tractors were proudly marketed as “Made in America,” Switzerland is where the customers paid their bills and where Caterpillar was taxed – at its own specially negotiated rate of 5%.
If you’re tempted to scream, “There ought to be a law against it!” get in line...
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