Corporate tax loopholes—and there is no better name for them— don’t sound like the most exciting topic, and maybe that’s part of why they’re absent from public discourse. At a time when politicians are scrambling to cut the deficit, it’s evident after investigating these loopholes that they’re looking in all the wrong places.
A great interview on NPR’s Fresh Air intrigued me, especially the numbers. The numbers are big. According to Kim Clausing, an economist at Reed College who studies multinational corporate taxing, the Treasury Department loses roughly $90 billion each year to corporate tax loopholes. Even conservative estimates are in the tens of billions of dollars.
How exactly do they do this? There’s a number of ways, but the most popular is the “Double Irish” coupled with the “Dutch Sandwich,” methods which Google alone used to save $3 billion dollars over the past 3 years.
First Google (or any other multinational dealing in intellectual property) shifts all of its non-U.S. intellectual property rights to an Irish subsidiary. Why Ireland? Ireland’s corporate tax rate is 12.5%, compared to 35% in the U.S. Then Google’s Irish subsidiary establishes an “office” in Bermuda (basically just an address). Another Irish company, this one operating with actual employees, is set up and licensed the property rights. Fees are paid to the “office” in Bermuda, though in order to avoid paying Irish withholding taxes, they are first shifted through another “company” (also owned by Google) in the Netherlands—hence the “Dutch Sandwich.”
Does this sound legal to you? Technically, it is, but the whole situation was created to get around U.S. tax codes designed to make multinationals, like Google, who are based in the U.S., and whose intellectual property was developed here, pay taxes here; all these mirror companies would never exist naturally in the market.
So, politicians want to cut out of control government debt? Then close these loopholes. Stop slashing programs Americans depend on: Planned Parent Hood by $317 million, NPR by $90 million. Why are we cutting teacher salaries, food stamps and police forces while corporations already making billions are cheating the public coffers out of billions more? Even worse, Wisconsin Governor Scott Walker crushed unions and cut teacher salaries while actually lowering corporate taxes. Those cuts are saving millions, which seems like mere pennies in comparison.
It’s time to talk about the other side of government debt. You know, the revenue side.
(Photo by sxc.hu)