The 10 Most Corrupt Tax Loopholes

If Mitt Romney won't tell you which need to be closed, we will

The 10 Most Corrupt Tax Loopholes
Justin Renteria

A year ago Citizens for Tax Justice, a Washington, D.C., nonprofit, studied the tax returns of 280 corporations. What it found was a Beltway version of a Mafia protection scheme.

From 2008 to 2010, at least 30 Fortune 500 companies — including PepsiCo, Verizon, Wells Fargo and DuPont — paid more for lobbyists than they did in taxes. They collectively spent $476 million sucking up to Congress, buying protection for tax breaks, loopholes and special subsidies.

It didn't matter that these same 30 firms brought home a staggering $164 billion in profit during that three-year period. They not only managed to avoid paying taxes. They actually received $10.6 billion in rebates.

U.S. Rep. Dave Camp (R-Michigan) has taken huge contributions from the financial sector. What did they get in return? Camp blocked legislation reforming the capital gains tax rates.
Michael Jolley/Creative Commons
U.S. Rep. Dave Camp (R-Michigan) has taken huge contributions from the financial sector. What did they get in return? Camp blocked legislation reforming the capital gains tax rates.
Sheryl Crow benefited to the tune of $2 million on a loophole put in place by Tennessee, Kentucky and Texas lawmakers.
Kevin W. Burkett/Creative Commons
Sheryl Crow benefited to the tune of $2 million on a loophole put in place by Tennessee, Kentucky and Texas lawmakers.

Welcome to the U.S. tax code, where companies like General Electric and Boeing contribute less to the federal treasury than a retired machinist living in Florida.

Defenders of the system argue that most deductions don't go to large corporations. That's true. By pure dollars, the lion's share go for mortgage interest, employer-paid health insurance, retirement plans and Medicare benefits.

The difference is these tend to benefit everyone. They're designed for the greater good, reinforcing the pillars of self-determination: home ownership, savings and health care.

But there's another part of the tax code where 99 percent of America is barred from entry. It's where Congress sells loopholes and subsidies to those with the wallets to pay. They not only screw the rest of the country — which is forced to cover the tab — but turn any notion of a free market into situational comedy.

Even for companies within the same industry, the disparities are alarming. From 2008 to 2010, UPS paid a tax rate of 24 percent. Rival FedEx paid less than 1 percent.

Monsanto managed to pay 22 percent — well below the supposed corporate rate of 35 percent. But that's nothing compared to DuPont, which received a $72 million rebate — despite profits of $2.1 billion.

This sleight-of-hand even extends to retail. While Nordstrom paid 37 percent in taxes, Macy's rate is just 12 percent.

You don't need a Wharton MBA to see how damaging this is to the nation's financial health. Big companies are given incentive to lard up on lobbyists, accountants and lawyers, rather than use that money to improve products and services. And while small businesses may collectively be our largest and most stable employer, we've rigged the game against them, since they can't afford to buy congressmen of their own.

"The tax code is a mess," says Maryland Democratic Congressman Chris Van Hollen. "I support tax reform, but not reform that's simply a Trojan horse for giving another round of windfall tax breaks to the very wealthy."

And that's the problem. President Obama and Democrats have railed for years over this brand of favoritism, only to cave like the French army at the first whiff of resistance.

Republicans are worse, prattling on about free markets while protecting just about any market-distorting loophole if the money's right. Mitt Romney, the poster child of off-shore tax schemes during his time at Bain Capital, claims he has a plan to close loopholes. He just refuses to say how he'll do it.

But if you're not being bought with weekend golf retreats at Augusta National, it's easy to find giveaways we all can agree the must end. Introducing the 10 most corrupt breaks, designed to do nothing but pervert America's economic strength:

10. I'm Irish. No, really.

Apple Inc. may have made Silicon Valley famous, but it prefers to let someone else pick up the check for Northern California's freeways, bridges and airports.

How? By pretending to be Irish.

In the late 1980s, Apple decided that Ireland's 12.5 percent corporate tax rate was a much more comely figure than America's 35. But Steve Jobs didn't want to move to Dublin. Fortunately, Congress allowed him to fake it.

Apple created an Irish subsidiary. Then, with a flourish of paperwork, it transferred its most valuable assets — its patents — to Ireland, comically forcing its U.S. headquarters to pay leasing fees for its own inventions.

Nothing had actually changed in the way the company operated. Apple simply had new paperwork saying it was partial to warm beer and fiddles, allowing it to dodge a substantial part of its U.S. tax bill.

But that wasn't the end of the scam. The Irish subsidiary is partially owned by another company, Baldwin Holdings, which doesn't even publicly list an office address or a phone number. But it does have paperwork saying it's headquartered in the Virgin Islands, where it can stockpile its income tax-free, outside the reach of the IRS.

Most people associate such exhaustive money laundering with drug cartels. But it's now standard practice at firms like Eli Lilly, Google, Microsoft, Pfizer and Facebook. The only difference is that when drug dealers do it, the government shows up with Kevlar and automatic weapons instead of a refund check.

Congress, meanwhile, is paid to look the other way, leaving the federal treasury to serial molestation by our most prominent citizens.

"The original sin is that we treat a wholly owned subsidiary in the Cayman Islands as if it was an arm's-length separate entity," says Dr. Calvin Johnson, a tax expert at the University of Texas Law School. "A pocket transfer from the U.S. to the Cayman Islands is like a transfer from your left pocket to your right. Any system that treats a Cayman Island subsidiary as if it is a separate entity is just asking to be destroyed."

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18 comments
roo_ster
roo_ster

Businesses ought not be taxed at _any_ rate.  Businesses are owned by folks, privately or publicly, who already pay taxes on profits and capital gains and fuel, etc.  No need to tax the same dollar multiple times.

 

And think of the reduction in lobbying for business tax loopholes...when there is no business tax to worry about.

primi_timpano
primi_timpano topcommenter

You neglected to mention the capital gains treatment of carried interest, the life blood of real estate developers, VC funds, and hedge funds. Billions and billions of taxes are avoided with this treatment.

UnCoverUp
UnCoverUp

Woops. Chris Parker forgot the most lucrative lawbyer (lawyer-lobbyer) inspired rat-hole of all--the  foreign tax credit (FTC). By far the biggest single contribution to the US federal tax receipt deficit is  US-incorporated international oil companies (IOCs) using fraudulent tax receipts issued by the corrupt dictatorial regimes (Saudi Arabia, Iran, Iraq, Libya, China,...) that own most of the worlds oil/gas resources coveted by IOCs. Although the FTC tax-scam has been "legal" for more than fifty years (see Daniel Yergin's "The Prize"), labeling of an IOC's foreign government partner's share of oil/gas profits as a foreign "tax" to give a US-incorporated IOC the benefit of the FTC is a fraud against the United States government. Furthermore, corrupt dictatorial regimes understand the value of the fraudulent tax receipts they issue and demand compensation (bribes) for aiding and abetting these multi-billion dollar tax FTC frauds.

 

Regulatory capture of the IRS by tax lawbyers has prevented that agency from prosecuting US-incorporated IOCs for FTC fraud. However if IOCs bribed foreign officials to obtain fraudulent tax receipts as ConocoPhillips did with the Gaddafi Regime in Libya (http://UnCoverUp.net), the Department of Justice (DoJ) and the Securities and Exchange Commission (SEC) can and should prosecute under the Foreign Corrupt Practices Act (FCPA). Although the DoJ and SEC also suffered from regulatory capture by lawbyers, the agencies may be more aggressive in prosecuting racketeer influenced IOCs to restore public confidence in the wake of revelations that the agencies employee-lawbyers knowingly allowed fraudsters Maurice Greenberg (AIG), Bernard  Madoff, and Allen Stanford (SIB) to carryout financial frauds that cost investors and tax-payers hundreds of billions of dollars in the collapse and resurrection of the US "financial services" industry in 2007-2009.

dlcole
dlcole

What the author failed to mention about Toyota closing the Ca plant that originally was a joint venture with GM.  GM bailed during the bankruptcy activities.  Toyota paid the UAW $250 million in benefits to close the Union plant and move activities to non-union Texas and Canada.  I find most of this tax article mis-leading and just plain wrong...full of 1/2 truths, etc.

 

 

http://online.wsj.com/article/SB10001424052748703909804575123941856957282.html

 

 

Lori312
Lori312

Ok, you are more business savy than I and you are more verbally on target than I.  You are right, and again, you are right.  I apologize for my sob comment - I just get so mad... Can't do anything about that.   So, you win,  I won't put my poor opinion on this site again....  Have a good one...

 

unify
unify

well written, well researched article.  thank you

Myrna.Minkoff-Katz
Myrna.Minkoff-Katz topcommenter

Romney is a loophole.  The man doesn't what the hell he stands for.  One day he's pro-choice, next day he says he'll get Roe v. Wade overturned.  One day he vilifies half the nation, the next he says he's totally behind all Americans.  One day he'll cut taxes on the rich.  Next day he says he won't.  Flip-flop.  That's what they said about him when he started his primary campaign, and he's proven it in spades.

bullard.randyj
bullard.randyj

The problem isn't that they pay too little, or that they pay too much.  It's that they pay anything at all.  The article talks about companies as though they're people, or entities with personalities.  A company is a collection of assets designed to generate and distribute profits to the OWNERS of the business.  Our tax code taxes OWNERS.  In my opinion, companies should pay 0% in taxes, because the OWNERS are already going to get taxed.  If the owners aren't getting taxed enough, then address the problem there.  But when Company X doesn't "pay fair their share" in taxes, that "fair share" instead goes to the retirement fund, or mutual fund, or whoever else owns those shares, and that's a good thing.

 

This article takes the typical liberal, anti-corporate, anti free enterprise mentality that companies are evil.  Companies aren't good or bad or evil or virtuous, any more than money itself is good or bad or evil or virtuous.  Companies are companies, and they operate in the best interest of their OWNERS, who are overwhelmingly me and you.  

Sotiredofitall
Sotiredofitall topcommenter

Yep that's right; the tax code is corrupt, a giant game of three card monte.    Who do you see running for office that has specifics on reforming the tax code; Gary Johnson does.   Keep railing aginst the Repukes and the Libertards, different flavor kool-aid is still kool-aid.

primi_timpano
primi_timpano topcommenter

@UnCoverUp Very true. I did not know about false tax receipts, but I do know that the oil companies convinced Saudi Arabia to take its oil royalties in the form of income taxes so the companies could take advantage of the foreign tax credit. If the payments were a 25% royalty, then a $100 of revenue would pay SA 25, leaving 75 to be taxed by the US. As a tax, SA and Exxon get the same revenues, but Exxon gets to claim a 25 credit from the US government, increasing its income back to 100.

dlcole
dlcole

 @unify

 Hardly researched...and full of 1/2 truths and incomplete stories...DO YOUR RESEARCH

primi_timpano
primi_timpano topcommenter

@bullard.randyj. . Without taxes there would be no government. Without government there would be nothing to establish property rights. Everything you own would be subject to conversion by the biggest, strongest, meanest, best armed person or persons. Since the rich receive greater benefits from government (the ability to enjoy and transfer their property) than regular people with jobs, a single home, and less than seven figure investment accounts, it makes sense the rich pay more. Look at it as insurance: a million of coverage costs more than a 1000 of coverage.

bifftannen
bifftannen

 @bullard.randyj The Supreme Court considers corporations as people. They should be taxed and subject to criminal law as such.

unify
unify

 @bullard.randyjWhat are you talking about??!  Corporations ARE people!  At least that's what the supreme court thinks and last I checked, they have a little bit of street cred.  Southern Pacific Railroad vs Santa Clara County circa 1886.  more recently citizens united.  if they are to be treated like people, they better pay taxes like people.

poppa_who
poppa_who

 @Sotiredofitall  Your statement might carry a little more weight if you could refrain from name calling,  "Repukes and the Libertards".  It makes you sound like a politician!

bullard.randyj
bullard.randyj

 @Lori312 Wow.  Such a warm and literate and "self righteous" response.

 

This isn't a "blue collar" / "white collar" issue.  That "blue collar" worker likely has a pension or a 401k.  And that pension or 401k is funded with assets.  And those assets are overwhelmingly equities in U.S. corporations.  And when Uncle Sam taxes the profits of those U.S. corporations, they're taking the money out of the 401k/pension of that "blue collar worker" you seem to be so concerned about.  So when you talk about "evil" corporations, just remember that the VAST MAJORITY of equities are owned by those 401Ks, and pensions, and insurance pools.  And you know who owns those?  YOU.  YOU own those.  

 

And you know who is going to get taxed on those assets already?  YOU are going to get taxed on those assets.  When you draw down your 401k, or your pension that you've worked so hard for all those years, YOU are going to pay Uncle Sam his fair share in the income taxes you file in those years.  The only question is HOW MUCH will be in those accounts for you to draw on as a function of Uncle Sam having already taxed the money going into them in the form of corporate profits.  

 

Your response shows a typical simplistic thought process on the topic - CORPORATION=EVIL.  "Blue Collar Workers"=VIRTUOUS.  CORPORATE PROFITS=BAD.  And most transparently "Anybody that has the audacity to make money and understand the economy" = "S O B"

 

What you clearly fail to understand is that corporate profits are what makes the economy work, and those profits are GOING TO BE TAXED ALREADY BY THE PEOPLE THAT RECEIVE THEM, which is you and me and all the "institutions" that we support with our insurance premiums and savings.

 
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