What’s
Wrong Today:
The
Obama administration is seemingly hell bent on cutting social security benefits
through chained
CPI, but they do nothing to deal with the loss of tax revenues from big
business and individuals who use pass through tax business entities to avoid
taxes.
Here is Nathaniel Popper in the NYT:
small but growing number of American corporations, operating in businesses as
diverse as private prisons, billboards and casinos, are making an aggressive
move to reduce — or even eliminate — their federal tax bills. They are
declaring that they are not ordinary corporations at all. Instead, they say,
they are something else: special trusts that are typically exempt from paying
federal taxes.
Popper is speaking
about the real estate investment trust, (REIT). The REIT became law in 1960 during
the Eisenhower administration. When they were created, they were meant to be
passive investment vehicles, like mutual funds, that buy up a broad portfolio
of real estate, whether shopping malls, warehouses, hospitals or even
timberland and derive almost all of their income from those holdings. One of
the bedrock principles (and the reason for the tax exemption) was that the
trusts do not do any business other
than owning real estate.
Now, changing from a standard
corporation to an REIT has become a corporate trend. The poster boy of
domestic government outsourcing, the Corrections
Corporation of America, which owns and operates 44 prisons and detention
centers across the nation, has received permission from the IRS to convert to
REIT status and as a result, will save many millions on taxes. They expect to
save $70 million in 2013.
Today, there are more
than 1,000 real estate investment trusts, about 10% of them are publicly traded.
Investors like them because, by law, they must distribute at least 90% of their
taxable income to their shareholders, an alluring prospect today, given the low
interest rates paid by other basic investments.
So,
What’s Wrong?
This
is just another tax avoidance scheme enabled through the 72,000 page IRS tax
code that contains thousands of tax preference items like the REIT and carried
interest provisions. Corporations and their tax lawyers are clipping coupons from a IRS tax code written by the rich, for the rich and enabled by
corporate campaign funding.
The
graph below from the OMB shows how low corporate tax revenues are as a
percentage of the total taxes that the government collects. It is the lowest level
in 25 years:
Corporate
profits, on the other hand, are at a 60 year high.
The GAO
issued a new
report which shows that corporate tax breaks cost the US government $181.4 billion in 2011 alone. The GAO calls these breaks “tax
expenditures”. The Center for Tax and Budget Accountability defines
tax expenditures as: (emphasis by the Wrongologist)
provide special tax cuts to corporations to promote economic development. These
tax breaks are called tax expenditures because they are basically a government
spending program. For example, the only difference
between tax expenditure and the Department of Human Services budget is the
government does not appropriate money to the corporation, the corporation
simply pays less tax, thus the government receives less tax revenue. Essentially, a tax expenditure is a special
tax incentive for business that reduces the amount of taxes the corporation
pays to state or local government.
In 2011,
the Treasury Department estimated 80 tax expenditures resulted in the
government forgoing corporate tax revenue totaling more than $181 billion. 56
of the 80 tax expenditures used by corporations in 2011 were also used by
individual taxpayers, which include businesses not organized as corporations:
In the
chart below from the GAO, parking corporate money offshore is the #2 cause of
lost tax revenues. The table includes the top seven reasons corporate tax
collections were $181.4 billion short for 2011:
With so
many loopholes in the corporate tax code, multinationals never pay the official
35% corporate tax rate. Many instead get money from us in the form of tax
credits and rebates. These same
corporations are the ones lobbying for austerity, to cut social safety nets like
Medicaid, Medicare and social security, while they demand Congress lower
further the corporate tax rate and add even more loopholes.
And
the beat goes on: The Huffington Post reported that America’s ten most
profitable corporations paid an average income tax rate of just 9% last year.
The top two corporations not paying their fair share in taxes are ExxonMobil (the
most profitable corporation in the history of the world) paying a mere 2%
income tax rate and Chevron paying 4%.
A
report earlier this year by The New York Times
found that state and local governments are providing $80 billion a year in tax
breaks and other subsidies in a race to attract companies. The Citizens for Tax
Justice (CTJ) found that 30 major corporations made billions of dollars in
profits while paying no federal income tax between 2008 and 2010. The CTJ
updated that report to add their 2011 tax bill to the total, and 26 of them have still managed to pay
absolutely nothing over that four year period.
This
loss in corporate tax revenue will be made up by slashing education, transportation
and social services.
This is prima facie
evidence of corporate interests hijacking the tax code. These are the greedy sociopaths
who are slowly drowning the New Deal (and later) programs in a Randian bathtub.
We
should call it the IRS tax evasion code since it is becoming a complete mockery
of fairness and decency.
We
no longer live in a republican democracy of, by and for the people, but a corporatocracy
run by the plutocracy. We have a Congress, of, by and for corporations and the special interests
of the 1%, who every four years anoint a President, while the
rest of the 99% of us continue to pay the taxes to support them, just as in the
time of King George III in the 1700s.
No
one has what it takes to say “no more” and then do the right thing.
Where and when will we say: Enough is enough?
