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Transplanting Taxes from Corporations to the Rest of Us

Transplanting Taxes from Corporations to the Rest of Us
Fri, 4/5/2013 - by Scott Klinger
This article originally appeared on Other Worlds

Today, corporate profits are setting all-time records while middle class families continue to struggle financially. These trends are intertwined.

Whether you’ve clicked to send your tax forms to the IRS along the cyber-highway or dropped your return in the old-fashioned blue mailbox, you’ll be paying extra to cover the growing amount of taxes that the nation’s clever corporations are shunting onto individual taxpayers.

Officially, the U.S. corporate tax rate stands at 35 percent, but in practice it’s far lower. Corporations have lots of tricks in their box of tax-avoidance tools.

Consider Pfizer’s track record. The drugmaker increased its offshore profits by $10 billion in 2012, boosting its offshore stash to $73 billion — all of it untaxed by Uncle Sam. Like most pharmaceutical companies, Pfizer registers its patents in a low-tax offshore haven, and then charges a high price for the use of this “intellectual property.” Doing so, it shifts all of its U.S. profits offshore, avoiding U.S. taxes and bloating its overseas bank account.

Pfizer’s tax dodging prowess has earned it a gold medal in the sport, but it has also drawn unwanted attention from the Securities and Exchange Commission. The SEC wrote to Pfizer last year asking them to explain four years of large losses in their U.S. operations despite reporting about 40 percent of their sales on American soil. Undeterred by the SEC investigation, Pfizer added a fifth year of U.S. losses to the string in 2012.

Imagine for a moment one of the physicians that prescribes Pfizer’s products taking their diploma off their office wall, carefully packing it up, and shipping it to a bank vault in the Cayman Islands. That diploma represents the doctor’s intellectual property. Without it, they would not be able to practice their profession.

After each visit, patients approaching the check-out desk would be given their bill and an envelope to mail their check to a post office box in the Cayman Islands. Faced with confused looks, the receptionist cheerfully explains, “Well, we have to pay for the use of the skills represented by the diploma, which is housed in the Caribbean.”

The corporate offshore tax dodge that shifts $90 billion of tax expenses onto individual taxpayers this Tax Day is just that crazy. Just like having a doctor’s diploma parked in the Cayman Islands does nothing to improve the quality of care, having corporate profits transferred from America to tax haven nations provides no enhanced benefits in terms of product quality or service. In other words, there is no economic value. It only serves to add more to already-overflowing corporate coffers.

In the 1950s, corporations paid nearly a third of the federal government’s bills. Last year, thanks to the antics of Pfizer and other examples of overly creative accounting, corporate income taxes accounted for less than a tenth of Uncle Sam’s total revenue. This dramatic shortfall shows up in two ways — federal budget deficit growth and the growing trend of individual taxpayers paying an increased share of the costs of government.

Only about two in every thousand American businesses are even eligible to play this game, and far fewer actually do. Most business owners are proud to pay taxes they know support schools, good infrastructure, and national security.

If tax-dodging corporations were people, they might say thanks to the responsible taxpayers who are picking up their share of unpaid taxes. But since they aren’t human, allow me to say on their behalf, “Have a Nice Tax Day.”

Originally published on Other Worlds.

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