It’s a bird, it’s a plane, it’s . . . a Tax Penalty!

One of the big political stories yesterday was Republican presidential candidate Mitt Romney correcting his top advisor, Eric Fehrnstrom, thus giving us the accurate description of how the individual mandate to purchase health insurance will be enforced.  Yesterday Mr. Romney called it a tax and on Monday of this week Mr. Fehrnstrom called it a penalty.  So it’s a “tax penalty”.  Neither Mr. Romney nor President Obama has ever promised not to create a new tax penalty that is needed to promote the common good. 

Many people and businesses have experience with a tax penalty.  Don’t pay your taxes on time or file the proper tax forms on time and you get a tax penalty?

And just like existing tax penalties, relatively few ever have to pay them.

Citizens for Tax Justice estimates that “less than three percent of households”, ones that can afford to buy health insurance but choose not to accept personal responsibility ("free riders"), will face this tax penalty. 

The other big political story yesterday was my friend Nick Shaxson’s article in the August issue of Vanity Fair.  Nick, Rebecca Wilkins (Senior Counsel on Federal Tax Policy at Citizens for Tax Justice) and I gave a Congressional staff briefing on offshore tax haven abuse in April last year.  That briefing was sponsored by the Financial Accountability and Corporate Transparency (FACT) Coalition.  

The three of us in this photo taken on the Capitol steps are joined by another friend, Chuck Collins (naturally on the left), a senior scholar at the Institute for Policy Studies.

In the Vanity Fair piece, Nick “delves into the murky world of offshore finance” and discusses Mr. Romney’s “familiarity with foreign tax havens” such as his assets sitting in Bermuda, Luxembourg and the Cayman Islands.  Nick specifically points to the example of a “Bermuda-based entity called Sankaty High Yield Asset Investors Ltd.” formed in 1997, a corporation wholly owned by Mr. Romney.  The fact that Mr. Romney failed to report this business on his financial disclosure statements prior to 2010 and that Mr. Romney continues to not reveal the value of the corporation has reignited interest in the use of offshore tax havens to avoid paying U.S. taxes. 

And as we should all know by now that when the wealthy and multinational corporations hide their money to avoid paying our taxes, the rest of us end up subsidizing all the benefits of America—our infrastructure, education, military, courts, etc.—that have helped these “free riders” be financially successful.

How Everyone Else Pays for Big Business's Tax Breaks

US  News and World Report
April 5, 2012

Families and small businesses pick up the tab for egregious tax loopholes exploited by corporations

By Joseph Rotella, Dennis Van Roekel

Some politicians might believe that "corporations are people," as former Gov. Mitt Romney declared last year.

At tax time, however, corporations enjoy better treatment than ordinary folks. While millions of individual Americans file last-minute income tax returns this month, some major corporations won't pay a dime despite reaping record profits.

From 2008 to 2010, the 280 most profitable U.S. corporations sheltered half of their profits from taxes, thanks to tax subsidies totaling nearly $224 billion, according to a 2011 analysis by Citizens for Tax Justice. A dozen large companies, including Exxon-Mobil, Boeing, and General Electric, reaped $175 billion in profits, but their combined tax rate was negative 1.4 percent, thanks to $64 billion in subsidies from oil depletion allowances, write-offs from overseas profits, and other loopholes, according to the study.

These subsidies didn't just come about by accident—at least 30 Fortune 500 firms pay their lobbyists more than they pay in taxes. Most small businesses can't afford lobbyists, so it's no surprise that the benefits of tax loopholes flow mainly to Wall Street, not Main Street.

Thanks to these loopholes, probably no major company pays the full federal corporate tax rate of 35 percent. The highest three-year average effective rate paid by any of the 12 large corporations in the Citizens for Tax Justice study was 14.2 percent—less than many middle class families.

That's the kind of sweetheart deal most taxpayers—and most small businesses—can only dream about. We do, however, get to pick up the tab for these costly tax breaks. For starters, when corporations shirk billions of dollars in federal taxes, middle class taxpayers must bear more of the cost of national defense, healthcare, and other necessary programs.

Then there is the effect on state and local services, most notably education.

Most states mirror federal tax loopholes, and many states also provide tax subsidies for companies just to locate within their borders. Total state and local tax subsidies to business add up to about $70 billion a year. That windfall for big business comes at the expense of students. Over the past three years local school districts have cut 238,000 education jobs, which means more students crammed into larger classes and fewer opportunities for extra tutoring or after-school programs. Middle class families have also had to foot a larger share of the bill for higher education, as total state funding has declined 3.8 percent over the last five years.

Small businesses also pay a price for corporate handouts. Not only is the tax burden shifted to companies that can't afford to game the system, but small businesses rely on public education to train skilled workers and teach them how to think critically. When Spencer Organ Company, Inc. was founded in 1995, many of the people who applied for jobs not only had basic reading and math skills—they also had been exposed to music education and had learned to use tools in shop classes, knowledge that is useful in the organ restoration business. Today, after years of curriculum cutbacks, most students have not had those opportunities, a shift that translates to higher training costs for this small business.

Our nation built the most prosperous economy in history during the 20th century, and public education was a foundation of that success. We all have a responsibility to provide similar opportunities for future generations to succeed, and our biggest corporations must do their fair share. After all, the same people who own stock in these companies also have a stake in America's future.

Joseph Rotella is founder and president of Spencer Organ Company, Inc. in Waltham, Mass. Dennis Van Roekel is a math teacher and president of the National Education Association.

http://www.usnews.com/opinion/articles/2012/04/05/how-everyone-else-pays-for-big-businesss-tax-breaks

The most fortunate of the Fortune 500

There are 280 corporations on the Fortune 500 list that are a lot more fortunate than the rest.  According to a just released study by Citizens for Tax Justice and the Institute on Taxation and Economic Policy these 280 corporations paid an average effective tax rate in 2009 and 2010 of just 17.3%. The official corporate tax rate is 35%.

Of this group of fortunate corporations, 78 had no federal taxes due in one year from 2008-2010.  Then there were the most fortunate 30 of them all that “enjoyed a negative income tax rate over the entire three year period on their combined pre-tax profits of $160 billion.”

If you’re not mad enough at this point about you paying your taxes while the giants of Wall Street avoiding paying theirs, you can read more of the press release here and the entire report here. 

Debt Ceiling Deal

Below is a statement on the debt ceiling deal from Citizens for Tax Justice released 8-2-11.
----------------------------------------------------------------------------------------------------

President Obama Breaks His Promise on Taxes Again

The so-called “Budget Control Act” that President Obama signed into law today to increase the federal debt ceiling and reduce the federal budget deficit marks the second time the Obama administration has capitulated on tax policy to the most extreme elements in Congress, those who are least in touch with the American people and most willing to risk economic disaster to get their way.

While our political leaders should be doing all they can to boost consumer demand and create jobs, the administration and Congress have instead agreed to slash public services without guaranteeing any increase in revenue.

To be sure, a revenue increase could result from the process established under this deal, despite Republicans’ claims to the contrary. But anti-tax lawmakers have already demonstrated that they will risk everything — including economic catastrophe — to block any and all revenue increases. As a result, we believe the only hope for a balanced approach depends on President Obama finding the courage (which he has lacked so far) to allow all of the Bush tax cuts to expire at the end of 2012.

Read the full statement.

Talking tax haven abuse at the U.S. Capitol

About 15 Congressional staff and 15 others attended a briefing yesterday at the U.S. Capitol. They were there to learn more about how tax haven abuse by U.S. based multinational corporations is harming our country. The event was sponsored by the FACT (Financial Accountability and Corporate Transparency) coalition.
 

I was invited to speak to the Congressional staff about the negative impact on small businesses of the big corporations avoiding paying U.S. taxes. More importantly, those attending heard from Nick Shaxson, whose book Treasure Islands: Uncovering the Damage of Offshore Banking and Tax Havens was released this week in this country. The other more impressive speaker was Rebecca Wilkins, Senior Counsel on Federal Tax Policy at Citizens for Tax Justice, who spoke on remedies to the tax haven problem.

Chuck Collins (Institute for Policy Studies), Nick Shaxson
(author of "Treasure Islands", Rebecca Wilkins (Citizens for
     Tax Justice) and Frank Knapp at the front steps of the U.S. Capitol

For everyone else who wasn’t able to be at the briefing, below were my prepared remarks.

------------------------------------------------------------------------------------------------------------

You might be wondering why a guy representing small businesses in South Carolina is here in such a prestigious building and with such prestigious company.

South Carolinians have a long tradition of concern with being treated fairly. For those of you who know your Revolutionary War history, tax fairness was the issue. A large percentage of the battles were fought in the Palmetto state and it was in the swamps and fields of South Carolina that the war turned in the favor of the colonies.

One hundred and fifty years ago this week, South Carolinians ignited a Civil War because they didn’t think they were being treated fairly by the federal government.

Eleven years ago I and other founded the South Carolina Small Business Chamber of Commerce and one of the reasons was tax unfairness between big and small businesses.

In the past two weeks, my organization has been fighting another fairness issue. Amazon.com insists that they won’t build a distribution center in our state if it isn’t exempted from collecting sales tax on sales to customers in the state.

We oppose this exemption because it would create an unfair competitive advantage for Amazon over our brick-and-mortar and on-line retailers all across the state.

So here we are at tax season and again the issue is tax fairness.

The use of tax havens by U.S. based multinational corporations is clearly unfair to small businesses in South Carolina and across the country.

Multinationals avoiding paying U.S. taxes means that the small CPA firm of the Chairman Emeritus of our chamber competes with H&R Block that pays an effective tax rate of only 12.5 percent.

Multinational corporations avoiding paying U.S. taxes means that another founding board member who started a community bank has to compete against bank of America that paid no U.S. taxes in 2009 and 2010 as well as against Wells Fargo that paid less than zero U.S. taxes in those years because of a tax rebate.

Multinational corporations avoiding paying U.S. taxes means that one of our current board members, who is developing health care information software must compete against GE that, as we know, paid no U.S. taxes last year.

The small businesses that we want to create and are creating the jobs this economy needs should not be competitively disadvantaged to multinational corporations by our own tax law that are clearly unfair.

Beyond the competitive unfairness, small business should not be paying more in taxes for all the services we need from the federal government because multinational corporations are avoiding paying U.S. taxes.

Small business owners might not enjoy paying taxes, but they are very patriotic and are big supporters of fair competition.

Offshoring profits to tax havens is neither patriotic nor competitively fair. More and more small businesses are coming to realize this situation and are raising their voices to call for change.

Just write the checks to Wall Street

When President Obama meets with Congressional leaders today, one of the issues on the agenda will be the Bush-era tax cuts scheduled to end for everybody December 31st.

On the eve of this important meeting, a report exposes why the U.S. Chamber has been waging an all out campaign to make sure the tax cuts for the top two tax brackets do not expire. It is fighting to protect its “richest CEO’s wallets”, according to U.S. Chamber Watch and Citizens for Tax Justice.

While the U.S. Chamber and the high-end tax cuts supporters claim they only want to protect small business owners (see my post on this lie), here are the real beneficiaries of their advocacy:

-- Rupert Murdoch, the CEO of News Corporation, whose donation of $1 million to the U.S. Chamber of Commerce led to well-publicized shareholder outrage, would pocket more than $1.3 million.

-- Don Blankenship, a former U.S. Chamber Board member and the CEO of Massey Energy, whose company owned the mine in which twenty-nine miners died in April 2010's mining disaster, the worst in forty years, would take home more than $700,000.

-- David Cote, the CEO of Honeywell and a member of the National Fiscal Commission, who keynoted an address to the National Chamber Foundation expressing concern about the national debt over the next ten years, would get a tax cut of over $1.2 million.

-- CEOs of big banks on Wall Street who helped collapse the economy and then used the U.S. Chamber to fight stronger financial regulations stand to reap between $700,000 and $1.6 million each.

-- The CEOs of the health insurance industry, whose industry saw an overall increase in profits this year even while they slashed benefits and instituted breathtaking premium increases, are looking to personally benefit from another hit on the middle class by taking in between $335,000 and $875,000.

-- U.S. Chamber president and CEO, Thomas Donohue, who has shifted the Chamber's mission from serving mainstream business to serving the interests of the CEOs whose corporations write the biggest checks, will personally gain over $200,000.

Every one of these CEO’s, I bet, is counted as a small business owner by the IRS because they own some rental property or some other passive investment. Someone needs to ask Rupert Murdoch or Tom Donohue how many new jobs they personally are going to create with their deficit-spending windfall. Or should the government just write their tax-cut checks to Wall Street since that is more likely where they’ll put their money.

Help stop a bad business decision—Join public briefing call today

This is a crucial week in Washington. Congress is back in session and the White House is holding a meeting Thursday with Congressional leaders to discuss issues.

One of the issues will be extending tax cuts to the wealthiest 2 percent of the taxpayers—tax cuts that will increase the deficit by $700 billion over the next 10 years and not be effective at all in creating jobs and helping small businesses.

How can you help stop this bad business decision?

Join me in a public briefing to learn more today at 2:45 p.m., sign a petition (see below) and call your elected officials. Thanks to Business for Shared Prosperity for their hard work and coordination on this effort.

JOIN THE BRIEFING CALL on Monday, Nov. 15 at 2:45 PM EST with Frank Knapp, CEO and President of the South Carolina Small Business Chamber of Commerce, and Steve Wamhoff, Legislative Director of Citizens for Tax Justice. Insight on the issues, legislative environment and tips for taking action.

► Call in #: (760) 569-7676, access code 818215. Monday, Nov 15 at 2:45 pm EST

SIGN/CIRCULATE PETITION: Urge Congress to let the high-end, budget-busting tax cuts expire for taxable income above $250,000.We can't afford to lose $700 billion to invest in small business job creation, education, health, infrastructure and renewable energy in the next decade.

► Sign the petition today

"Extending the high-end Bush tax cuts serves K Street lobbyists, not Main Street shop owners. Politicians should not use us to justify a very bad business decision." - Frank Knapp, CEO, South Carolina Small Business Chamber of Commerce.

TELL PRESIDENT & CONGRESS WHAT YOU THINK:

Sign the petition and follow it up with a personal call or letter for maximum impact.

► Phone the White House Switchboard 202-456-1414; Comment line 202-456-1111

► Congressional switchboard 202-224-3121.


► Write Your Senator at http://www.senate.gov/general/contact_information/senators_cfm.cfm

► Write Your Rep at https://writerep.house.gov/writerep/welcome.shtml

REPORT & TALKING POINTS: Restoring Top Tax Rates Makes Sense for Small Business.
 Our short report tells why it makes good business sense to reset top tax rates to where they were between 1993 and 2000 during the longest economic expansion in US history.

► Read the Report, Use the Quotes and Talking Points

GET YOUR VOICE IN THE MEDIA

► Press Release: Business Leaders Call on President, Congress to Let Bush’s High-End Tax Cuts Expire

► Letter to the Editor: Write a short letter to the editor responding (pro or con) to an article, editorial or op-ed you see. Refer if you can to Business for Shared Prosperity. Letters to the editor are widely read!

► Recent Press: Frank Knapp, We Didn't Vote for This, The Hill

► Talk to the Press: The more people involved, the more areas we can cover. Contact Bob Keener at bobkeener@businessforsharedprosperity.org or 617-610-6766.

Thank you for signing the petition, speaking out and spreading the word!