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Allan Powell: A nation in need of tax reform

August 30, 2013|By ALLAN POWELL

On May 21, the media informed the nation about some very shady practices of the giant electronics corporation Apple. No matter how you slice it, Apple and many other corporations are involved in clever ruses to dodge the payment of taxes. Regardless of how deceptive these offshore schemes appear to be, these corporations claim they have done no wrong and — what’s more — “everybody else is doing it.”

A Senate panel (the Permanent Subcommittee on Investigations) was convinced of a “complex web of offshore entities (with no employees or physical offices) that allowed Apple to pay little or no taxes on tens of billions of dollars it earned overseas. Specifically, the committee concluded that between 2009 and 2012, the company shielded at least $74 billion in profits from U.S. tax laws by setting up subsidiaries in Ireland.”

It takes a large dose of gall, bravado and hypocrisy for Tim Cook, CEO of Apple, to claim that “Apple does not use tax gimmicks” to avoid paying taxes while millions of average citizens dutifully carry their share of the tax burden. One tax analyst frankly declared that, “They’d be stupid not to do it.”

Fortunately, there are interested parties who care about the evasive habits of some corporations and who monitor their activities. Two of these investigative agencies, Citizens for Tax Justice and Americans For Tax Fairness, share their findings about corporate tax abuse. They begin with a statement released by the Senate committee mentioned earlier. Apple had a system of tax abuse “so complex it spanned continents and went beyond anything most experts had ever seen.”

Ten corporations — Apple, Microsoft, Pfizer, Merck, Google, Abbott Laboratories, Johnson & Johnson, Citigroup, International Business Machines and General Electric — were listed by Citizens for Tax Justice as having a total of more than $106 billion in offshore profits for just the past year.

Americans For Tax Fairness showed a decline in corporate tax payments as a percent of federal revenues from 1952 to 2012. It is quickly apparent that while the shift downward is uneven, there is still a steady decline from 35 percent in 1952 to 10 percent in 2012. There are several reasons to explain how this dramatic shift came about.

In addition to the use of offshore tax havens, there was the advent of awarding CEOs markedly excessive payment. When Congress exempted all pay classed as “performance based,” the response was to give compensation beyond a certain level in the form of stock-based pay. Such a form of tax relief was not available to most Americans.

The next device providing a tax dodge borders on the unbelievable. For average citizens, fines are not deductable from their income at tax time. These investigators aver that corporations can deduct fines for corporate crimes and abuses. This sure makes it look like crime does pay. Maybe this is why the conservative majority on the Supreme Court was so persistent in stretching a corporation into a special form of personhood.

Still another means to avoid taxes is to use bailout funds to a corporation’s advantage. According to these tax specialists, American taxpayers spent more than $2 trillion to bail out America’s financial institutions during the Great Recession. There was no demand to use the losses incurred during the crisis to reduce taxes for years to come. In effect, some corporations received a second bailout. Bank of America was listed as an example of this kind of tax dodge.

There has been a steady increase in the demand to reform our tax code. Gifted writer Fareed Zakaria made a public appeal to President Obama to take a more active role in tax reform. But, as he asks: How do you even start with a code of 74,000 pages of rules and regulations? Worse, he accuses the system of being one of “institutionalized, legal corruption.”

“Companies, industries and lobbying groups receive special preferences in return for campaign contributions,” he writes. They are the forces that will oppose all attempts for rational tax reform. It is clear that we have a good many spoiled apples in the barrel. 

Only several days after this was written, Apple again was charged with serious misconduct — this time for alleged violation of antitrust laws. The rot goes on. It is still uncertain if Congress has the will and the moral sensitivity for tax reform.

Allan Powell is a professor emeritus of philosophy at Hagerstown Community College.

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