Speak Your Piece: A Whopper of a Deal
[imgbelt img=cartoon_thumb.jpg]What do corporations get in return for their political contributions? Plenty. An agriculture policy professor argues that unlimited corporate money in politics hurts America’s working families.
Burger King is in talks to buy Canadian coffee and doughnut chain Tim Horton. In Wall-Street Banker lingo, this deal will be a “tax inversion,” moving Burger King’s headquarters from the U.S. to Canada
Tax inversions are on the rise because they allow the parent company to escape or reduce U.S. corporate income taxes. That is a Whopper of a Deal for Burger King but not for U.S. government coffers.
The tax inversion is just one example of the many economic policies and tax laws that favor corporations over individuals. These policies help corporations squeeze out more profits at the expense of the middle class, shift the tax burden to working families and hinder government’s ability to provide basic services to the nation. It’s a bad deal for both rural and urban communities.
Why would Congress go along with a plan like this? Simply put, because corporations pay them to. Businesses donate billions of dollars to political campaigns because the benefit cost ratio is considerably greater than 1.
What do they get for their “investment”? Plenty.
Tax inversions have been happening since the late 1800’s but are much more common in recent years, with almost 50 companies inverting in the past decade. Congress considered legislation in 2004 to stop inversions, but the watered down law they passed left a gaping loophole that allowed U.S. corporations to become a foreign corporation, if they merged with a foreign partner, even a much smaller foreign partner.
Under current law, inverted companies must still pay U.S. taxes on profits they earn in the U.S. Of course, there are many ways corporations can and do hide profits.
Corporate executives refer to ways of hiding profits in words like “stripping” and “hopscotching,” but to most of us this is plain old “cheating.” Cheating reduces tax revenue to the government, which eventually means cuts in government services or raising taxes on most of us.
Hoarding of profits offshore is big business for U.S. corporations. It has been estimated that U.S. corporations have $2.1 trillion socked away in offshore accounts and in foreign businesses. That number has a lot of zeroes. It amounts to more than $17,000 per U.S. household that U.S. corporations have squirreled away offshore.
According to a recent study, just 20 of the corporations—including household names like GE, Microsoft, Apple, IBM, Coca-Cola and Goldman Sachs—hold half of this total. Not surprisingly, these same companies are the largest political donors and have the largest herd of lobbyists. Ever.
Both political parties continue to complain about tax inversions and corporate cheating but have offered nothing but rhetoric.
Cheating on taxes goes well beyond corporate personhoods. Wealthier households also hide income and wealth offshore. Economist Gabriel Zucman estimates “around 8% of the global wealth is in tax havens, three-quarters of which goes unrecorded.”
Although tax inversions have captured recent news, there is another kind of money inversion that is even more insidious than tax inversions. This is the “income inversion” that comes from growing corporate economic and political power being used to squeeze money and purchasing power out of most households.
The middle class, in particular, is caught in a vise of falling real income and higher consumer prices. Some of the squeezing in the vise is caused by corporate vice, or greed.
Proof of an income inversion is in the numbers. The chart below shows U.S. corporate before-tax profits and taxes expressed in current dollars. Corporate profits have increased a whopping four-fold since 1980, from about $500 billion to over $2 trillion last year. (The dramatic increase in profits is not due to corporations accounting for a greater share of business compared to non-corporate business, as the gross value added by corporate businesses has declined from about 60% to about 56% during the same time period.)
Obviously, citizens who think overturning Citizens United is a good idea need to tell their legislators, state and federal. Because you know corporations, including the ones controlled by foreigners, will.
C. Robert Taylor is Alfa Eminent Scholar and Professor in the College of Agriculture at Auburn University.