The 10 Most Corrupt Tax Loopholes

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

Actually, it already has been destroyed. Despite declaring $18 billion in profits in 2010, Apple paid just 17 percent in federal taxes. It socked away another $74 billion offshore and tax-free.

Who covers the difference when Apple pretends to be Irish? That would be you.

9. How to lower your taxes by sitting on your ass.

Facebook founder Mark Zuckerberg took advantage of a multi-billion dollar tax scam during his company's IPO.
Guillaume Paumier/Creative Commons
Facebook founder Mark Zuckerberg took advantage of a multi-billion dollar tax scam during his company's IPO.
Republican presidential nominee Mitt Romney is the poster child of off-shore tax schemes.
Austen Hufford/Creatives Commons
Republican presidential nominee Mitt Romney is the poster child of off-shore tax schemes.

Back in the 1970s, "hard work" wasn't just something candidates yammered about during campaigns. It was actually imbedded in the tax code. Capital gains — investment income created by things like stock dividends — were taxed at a higher rate than wage income for a very simple reason.

"The theory was that it was tougher to dig a ditch than to watch somebody do it," says Robert McIntyre, director of Citizens for Tax Justice.

Even Ronald Reagan knew that someone shouldn't pay less for sitting on his ass. He made the capital gains tax the same as the highest personal rate.

But heavy protection payments have since whittled that notion of "hard work" down to a toothpick. George W. Bush finally hacked it to its current low of just 15 percent.

Officially, the theory is that lowering capital gains will spur investment, creating new companies, new jobs and prosperity for all. But most economists have found it does little to spur savings and investment.

What it does do is deliver a fortune to investment bankers and financiers like Romney and Warren Buffett, both of whom pay lower rates than their secretaries.

More than 70 percent of the $100 billion that capital-gains tax breaks cost the government each year goes to those with incomes in excess of $1 million, according the Joint Committee on Taxation. Even more shocking, the 400 highest-income Americans received 16 percent of all net capital gains in 2009, a total of $37 billion. Michigan Democratic Congressman Sander Levin has tried to shear this golden lamb by requiring those taking capital gains breaks to prove they actually invested. Yet Congressman Dave Camp, a Michigan Republican and chairman of the House Ways & Means Committee, has blocked the bill from ever coming up for a vote. (Camp did not respond to repeated interview requests.)

It's probably just coincidence that since Camp entered Congress in 1998, he's taken a whopping $631,916 from the financial industry.

8. The Sheryl Crow loophole.

It pays to have low friends in high places. Six years ago, legislators from Tennessee, Kentucky and Texas wanted to reward those who provide the star power to their fundraisers: country musicians. So they passed a law allowing songwriters to avoid income taxes and sell their publishing catalogs at capital gains rates.

Suddenly, Nashville's elite could not only avoid the taxes everyone else must pay; they could also skirt their Social Security and Medicare bills.

Three years later, Sheryl Crow sold her publishing rights to one of Australia's largest banks for nearly $10 million. Her estimated savings courtesy of this congressional giveaway: $2 million.

The law, however, curiously omitted other creative types who weren't hosting congressmen's rallies. Authors, for example, still must pay standard income taxes for selling the copyrights to their books. The same goes for painters, photographers, screenwriters and sculptors.

7. Getting rich, Facebook style.

Before Facebook offered its first publicly sold stock in May, CEO Mark Zuckerberg grabbed 120 million shares for himself, then threw another 67 million shares to his employees.

It may have seemed an unusual act of generosity for a man not known for his grace. That's because it was also a multi-billion dollar tax scam.

The public paid $38 a share for Facebook stock in initial trading. Yet via a sweet little loophole created by Congress, Zuckerberg claimed the shares he gave employees were worth just six cents apiece. By law, Facebook was allowed to deduct the difference — more than $7 billion — as a business expense.

In reality, the employee giveaway cost Facebook nothing. It neither expanded the company's expenses nor increased its liabilities. McIntyre compares it to an airline letting workers fly free in seats that would otherwise have been empty. The airlines don't receive a break because it doesn't cost them anything.

But thanks to some inventive paper shuffling, Facebook will receive a $500 million tax refund next year.

A similar loophole encourages companies to offer executives those bloated compensation packages.

When CEO wages began to spur outrage in the early Clinton years, Congress decided that companies could no longer deduct executive salaries over $1 million as a business expense.

But it also created a loophole that rendered its crackdown meaningless. Exempted were "performance-based" bonuses that surpass that $1 million threshold. A grand new corporate giveaway was born.

Suddenly, CEOs were being slathered with stock options. Companies expensed the giveaway without ever opening their wallets, leaving taxpayers to subsidize caviar compensation plans.

Last year, the five highest-paid CEOs collectively took home $232 million — while their companies received a tidy $81 million in tax breaks.

6. My other home's a yacht.

Established in 1913, the mortgage interest deduction is one of the oldest and most sacred breaks in the code. It's meant to encourage home ownership and stabilize communities.

It doesn't really work, since most people will buy homes whether they receive a break or not. Countries like Australia and Canada have similar ownership rates to ours without offering the deduction.

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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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