Tax evasion is persecuted heavily in the United States. If you’re caught keeping income away from the federal government, you could be looking at a hefty prison term and fine. This very crime that put Al Capone, the notorious mafia-gangster, behind bars. And yet, when companies dodge taxes, their shareholders rejoice. Nowadays, rapacious corporations are pushing the limit of U.S. tax laws by engaging in one of the sneakiest tax-dodging practices ever: tax inversions.
What are corporate tax inversions?
Bear with me as I try to explain a fairly complicated procedure. Essentially, corporations pay certain tax rates in America. Sometimes motivated by intrinsic greed — at other times by shareholders — corporate executives decide that moving their official headquarters to another, overseas location would be better for taxation. In switching to another country, with lower tax rates, they can pass on those savings to shareholders via greater earnings per share (via profit and revenue), larger stock buybacks, and more dividends. All they have to do is purchase another company that already has its headquarters in a tax haven.
When you own shares in a company like this, you can easily get swept up into this grand, wonderful idea. You’ll be getting more money for your investment and the company will be even more competitive. These are significant advantages — until you look at the dirty consequences.
When robber barons are more patriotic than today’s businesses…
Robber barons — 19th-century industrialists/capitalists — knew how to make money hand over fist. They could squeeze workers and make millions of dollars (billions when accounting for inflation). Many of these elite capitalists formed companies in finance, manufacturing, oil, and transportation. These industries were at the heart of American success; although, the robber barons made a lot more than your average, everyday peon.
There was a uniting factor to these antiquated moneymen: pride in country. They made their riches here, and much of the money flowed back into America. For instance, Andrew Carnegie, who started one of the largest steel manufacturers in the world, gave much of his wealth to schools (Carnegie Mellon University), museums, and libraries.
As America matured, tax laws and corporate structures evolved. Workers were offered more rights due to union memberships. Talk of a fair wage encouraged companies to pay more and protect workers. America became a booming economy, despite these new restrictions. Social welfare programs developed, as well, which sent people to college (affordably) and created Social Security. There was a respect for those who worked 40 years. The country believed they deserved to live safely after working so hard. Today’s businesses seem to have a different motivation.
How much do American companies have to pay in taxes?
Now, hardly a day goes by without a corporate executives complaining about excessive taxation. Steve Schwarzman famously compared the pressure for increased taxation to the invasion of Poland by the Nazis. Classy! Or, how about the Home Depot founder, Ken Langone, who said that increasing taxes, awareness of income inequality, and the Democratic agenda was “was what Hitler was saying in Germany.” Holy hyperbole! And the last one (that I’ll include in this article) comes from Tom Perkins, whose net worth is said to be around $8 billion. He said, “[there’s a] progressive war on the one percent…In the Nazi area it was racial demonization, now it is class demonization.” To put it simply, he’s saying that poor people clamoring for help is comparable to Nazis killing Jews. Better to bite your tongue, perhaps?!
Beyond the disturbing question of why some bigoted wealthy people freely invoke the Holocaust and its accompanying atrocities, I’m left wondering how bad it is in America for them. If people are that stirred up and eager to fight back poor people, tax increases, and basic rights for workers, these executives must be struggling. Alas, avoid the wellworks, the aforementioned Nazi-invokers are all billionaires. I trust they’ll find a way to pay their next meal.
Despite these clarion calls for tax revolution, American companies are doing well. In fact, corporations are seeing record profits year-over-year. How can this be happening in these awful, tax heavy times? Well, for large-cap corporations, they’re not. Armed with restless lawyers, accountants, and lobbyists, the largest companies march up to Capitol Hill and demand tax breaks. And you know what? It works.
Yesterday, CNBC reported on 20 (to name a few) companies that pay 0% in taxes. Take a look and see if you recognize any:
2. Seagate Tech
3. Thermo Fisher
4. General Motors
5. Public Storage
6. Iron Mountain
7. Newmont Mining
10. Kimco Realty
12. Boston Properties
13. Apartment Investment
14. Plum Creek Timber
15. Citrix Systems
16. Crown Castle
18. News Corp.
19. Essex Prop.
20. First Solar
These companies are likely benefiting from tremendous tax loopholes and writeoffs that are only available to them. From federal investments to research grants to special “one-time” discounts, they add up and suddenly the bill comes to $0.
That means that the preceding list doesn’t contribute a single dollar to our federal budget via traditional taxes. Moreover, they don’t properly fund our infrastructure that they rely on. Without the education, federal investments/breaks, transportation system, etc., these companies would have a devastatingly hard time finding success here.
Business-first media outlets such as the Wall Street Journal swiftly defend companies by saying:
“We’ve written for years about how the U.S. has the highest corporate income tax rate in the developed world, and that’s an incentive for all companies, wherever they are based, to invest outside the U.S.”
In this strange time when taxes are demonized, it’s important to realize that many companies aren’t paying their fair share. These claims that America has the highest corporate tax rate in the world don’t reflect the numerous benefits; after all, membership has its privileges and sometimes that includes sizable tax breaks.
How do corporate tax inversions hurt countries?
Despite this business-friendly reality, some companies still seek to lower their tax burdens — wherever they can find them. Tyco International, Fruit of the Loom, Ingersoll Rand, Transocean, and Eaton Corporation all successfully left the U.S. (for tax purposes), but they all still benefit from the infrastructure and development here. See, even after you leave a country, its people, and suck another $1 billion into your coffers because of the move, we welcome you to do business here with open arms.
It’s sickening. Companies vacate the U.S. for places like the Cayman Islands, Ireland, and Switzerland, where the corporate taxes are zero percent. Americans, again, lose all that tax revenue that would’ve gone to state and federal programs. This all contributes to widening budget gaps, shortfalls, and growing austerity measures. Then, the welcoming nation holds out open arms for the new company. But despite the new headquarters, they make zero percent from their new neighbors.
This is a brutal act that causes disruption for both countries. With zero percent coming in for either party, they both suffer the consequences of a newly globalized world.
Globalization was supposed to bring greater diversity and talent. Suddenly, the world is flat, right? Aren’t we supposed to be benefiting from a shared upward mobility? When tax inversions are employed, it’s hard to see how anyone could possibly benefit — except for a select few shareholders and corporate executives.