George Graham

News Flash! Big U.S. Companies (and Rich Folks) Dodge Taxes

I’m sure you’ve heard the Republican Party’s call for tax reduction. The theory is that by reducing taxes the government gives wealthy individuals and enterprises an incentive to operate in the United States, creating jobs and circulating money. According to this view, one reason for the sluggish U.S. economy is that “we have the second-highest corporate tax rate in the world.”

taxNow, taxation in America is a complex web that is difficult to figure out, but I gather from Wikipedia that all things considered, America does rank second (to Japan) as having the world’s highest corporate tax rates. However, this shouldn’t be much of a factor considering that most large corporations (and wealthy individuals) dodge U.S. taxes anyway. Over the past 50 years, the share of tax revenue from business has plummeted. In 2003, for example, corporate taxes represented just 7.4 per cent of federal revenue, down from 32 per cent in 1952.

Here’s one popular dodge: Let’s say Megabucks Corp. is headquartered in New York City, enjoying the amenities provided through American taxes, but would rather not contribute its fair share to those taxes. Megabucks’ financial whizzes could channel the bulk of the company’s profits through a subsidiary set up in the Cayman Islands (or one of many other countries that do not tax foreign-owned corporations) to¬† avoid American taxes. Often, the “company” in the tax haven is nothing more than a one-room office with a name on the door and a receptionist to answer the phone.

This kind of tax dodge has been going on since the days of Ancient Greece, and politicians have been promising to fix it for almost as long. Back in 2006, for example, U.S. senators demanded a crackdown on offshore tax havens in the wake of a report that one building in the Cayman Islands was used as a business address for more than 18,000 companies.

Now, the bright sparks at the Government Accountability Office have also figured it out. Today, the wires are buzzing with the news that 83 of America’s 100 largest corporations had subsidiaries in offshore tax havens in 2007. To make this discovery even more newsworthy, AP found that some of these companies received bail-out money recently. They include: Bank of America, Citigroup, Morgan Stanley, American International Group, JPMorgan Chase & Co., and Wells Fargo.

Sens. Carl Levin of Mexico and Byron Dorgan of North Dakota, who requested the report, are pushing for tougher laws to fight offshore tax havens around the globe. Levin, who leads the Senate Permanent Subcommittee on Investigations, has estimated abusive tax havens and offshore accounts cost the U.S. government at least $100 billion a year in lost taxes.

“I think we should take action to shut down these tax dodgers, and we will be introducing legislation to do just that,” Dorgan said.

Good luck with that, Senator! I bet you can’t devise a law in which some smart tax lawyer can’t find a loophole or two (or three).

About the author

gwgraeme

I am a Jamaican-born writer who has lived and worked in Canada and the United States. I live in Lakeland, Florida with my wife, Sandra, our three cats and two dogs. I like to play golf and enjoy our garden, even though it's a lot of work. Since retiring from newspaper reporting I've written a few books. I also write a monthly column for Jamaicans.com