The Key to Our Fiscal Decline

Paul Buchheit has an article at Alternet that spells out the core problem underlying our systemic federal debt problem and the way the tax burden has been shifted away from wealthy corporations and toward individual taxpayers. Some of these numbers are pretty astonishing:

In the past  twenty years, corporate profits have  quadrupled while the corporate tax percent has dropped by  half. The payroll tax, paid by workers, has doubled.

In effect, corporations have decided to let middle-class workers pay for national investments that have largely benefited businesses over the years. The greater part of  basic research, especially for technology and health care, has been conducted with government money. Even today  60% of university research is government-supported. Corporations  use highways and shipping lanes and airports to ship their products, the FAA and TSA and Coast Guard and Department of Transportation to safeguard them, a nationwide energy grid to power their factories, and communications towers and satellites to conduct online business…

Corporations have used numerous and creative means to avoid their tax responsibilities. They have about a year’s worth of profits  stashed untaxed overseas. According to the  Wall Street Journal, about 60% of their cash is offshore. Yet these corporate ‘persons’ enjoy a foreign earned income exclusion that real U.S. persons don’t get.

Corporate tax haven ploys are legendary, with almost 19,000 companies claiming home office space in one  building in the low-tax Cayman Islands. But they don’t want to give up their U.S. benefits. Tech companies in 19 tax haven jurisdictions received  $18.7 billion in 2011 federal contracts. A lot of smaller companies are legally exempt from taxes. As of 2008, according to IRS data, fully 69% of U.S. corporations were organized as  nontaxablebusinesses.

There’s much more. Companies call their CEO bonuses  “performance pay” to get a lower rate.  Private equity firms call fees “capital gains” to get a lower rate. Fast food companies call their lunch menus “intellectual property” to get a lower rate.

Prisons and casinos have stooped to the level of calling themselves  “real estate investment trusts” (REITs) to gain  tax exemptions. Stooping lower yet, Disney and others have added cows and sheep to their greenspace to get a  farmland exemption.

The IRS estimated that  17 percent of taxes owed were not paid in 2006, leaving an underpayment of $450 billion. The revenue loss from  tax havens approaches $450 billion. Subsidies from special deductions, exemptions, exclusions, credits, capital gains, and loopholes are  estimated at over  $1 trillion. Expenditures overwhelmingly  benefit the richest taxpayers.

Here’s a number the article does not include: During the Eisenhower administration 60 years ago, corporate taxes made up 32% of all federal revenue; today, it’s only 9%.

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  • Dennis N

    Not to mention the mess that is patent and copyright law. And the jacking up of fees all around government to replace lost tax revenue. And the two-tired justice system.

  • And that’s why we have to have a tax repatriation holiday. And also “lower and widen” the tax base. Because those are the solutions on offer. The solutions to what, I don’t know.

  • unbound

    And this doesn’t even speak to the continuing shift of income to an increasingly smaller percentage of people. Taxes would have to get substantially higher on the top 0.01% to get close to where we were with the top 1.0% 30 years ago.

  • zippythepinhead

    But, but, but the Dow is over 15000! Doesn’t that make it all worth it?

  • eric

    All IMO, but for what it’s worth…

    Basic research is an interesting case, because in the last decade or two the private sector contribution has been booming (pharmaceutical and biotech companies do a lot in-house). The motives for this are not lily-white, and it has its problems, but overall IMO its good to see. The REALLY interesting thing is that when the private sector finds an area where it thinks it must do its own basic research, it tends to value it higher than the public sector does. I am just pulling numbers from memory here, but I believe that if you look at DOD or DHS or DOE and ask what % of their research is pure, basic vs. applied, the pure basic research tends to run around 3-5%. In biotech, it can reach up to 15%. So it seems that the big push from Congress and University administrators to focus research on more ‘bang for the buck’ type of stuff is exactly the wrong thing to do; according to what the marketplace says, the best long-term strategy for creating innovation and developing new technologies is to increase basic research from where it is now, not decrease it. Its somewhat counter-intuitive, but it appears to be the case that if you want to get to the best 2050 fighter jet you can (that’s just an example), the right strategy is to give less money to funding jet-focused research and comparatively more money to basic materials science, physics, etc.

  • I have a little trouble with calling out companies for taking advantage of existing tax exemptions. Disney adding cows and sheep seems like a savvy scheme. On the other hand, I have no problem at all seeing why a system that allows that kind of gaming is deeply broken, and attaching blame to those companies that actively lobbied to break the system for their own benefit. The professor who taught tax classes at my law school openly joked about how we were taking a worthless course, because nothing we could learn in the class would last more than a few years. In his mind, the tax code was entirely untenable.

  • Nick Gotts (formerly KG)

    Corporate tax haven ploys are legendary, with almost 19,000 companies claiming home office space in one building in the low-tax Cayman Islands.

    Well these are obviously small businesses, or there’s no way you could fit 19,000 of them into one building!