Report: Close Corporate Tax LoopholesReclaiming Our Democracy

Who Slows the Pace of Tax Reforms?

Released by: U.S. PIRG

As Congress considers a number of international tax reforms and loophole closing measures, the Administration and Congress have heard from many stakeholders.

One of the more vocal groups has been the coalition called Promote America’s Competitive Edge, or PACE.  To better understand where opposition to reforms is coming from, U.S. PIRG conducted a simple investigation into some of the major corporations who have signed onto one or more of the PACE coalition's many letters to Congress (PDF), and looked at how they benefit from maintaining the status quo.

The group of twelve prominent corporations profiled rank among the top 100 largest publicly traded federal contractors that also maintain a significant presence in tax haven countries or so-called financial privacy jurisdictions.

These corporations are huge beneficiaries of the current system in terms of contracting rules and their ability of avoid taxes that other companies must pay.  In 2010, these twelve corporations alone received over $8 billion in government contracts. And this small group collectively has 443 subsidiaries in tax haven countries, where they pay minimal, if any, taxes. 

The twelve companies generate profits on taxpayer dollars through lucrative government contracts without contributing their fair share of taxes, leaving that burden to other businesses and regular taxpayers.  It has been estimated that the U.S. taxpayers must make up for over $100 billion per year in lost revenue due to the abuse of offshore tax havens.

Additionally, this "dirty dozen" together spent nearly $6 million in Political Action Committee (PAC) expenditures for 2010, over $54 million lobbying in 2010, and over $15.5 million so far in 2011.

Putting the Brakes on Tax Reform

Corporations have a vested interest in helping elect politicians who may give them a sympathetic ear.  They give money through various means, but most liberally through their Political Action Committees (PACS) to candidates, to parties, and to other PACs. In an attempt to further promote the lucrative status quo, corporations invest significant amounts to lobby elected officials – many of whom their PAC dollars helped elect – on numerous issues, including fighting tax haven reform. "We're going to spend whatever it takes," said Brigitte Schmidt Gwyn, of the Business Roundtable, to Politico earlier this year when asked about defeating tax reforms. The Business Roundtable is a member of the PACE coalition.

It’s a self-feeding cycle. By keeping profits in tax haven subsidiaries, these corporations have more cash available to use for other purposes including help elect politicians likely to represent their interests, as well as to lobby those in office to generate more contracts and tax incentives that keep the cycle going.

The data in Table 1.0 lays out the financial interests of the twelve corporations—their contracts and tax haven subsidiaries as well as their lobbying and PAC activities.

Solutions – Giving Politicians the Option to get Big Money out of Their Campaigns

Federally, we need a voluntary system of small donor-focused fair elections. The types of reform that are required can be found in the Fair Elections Now Act (S. 152, H.R. 1826):
  •  Small donors get incentives through public matching funds to participate and support candidates,
  •  Grants are provided to enable competitive campaigns to candidates who have demonstrated strong support from their constituents, and

  • Both these matching funds and grants would enable candidates for Congress to run for office without relying on large contributions and big money bundlers, and would free them from constant fundraising in order to focus on what people in their communities want.

Solutions – Reforming Our Tax System

Several common-sense reforms would address the loss of billions of dollars each year due to tax haven abuse. 

The necessary reforms can be found in the Stop Tax Haven Abuse Act (S. 506, H.R. 1265). These include:

  • Making it law that transactions must have some real economic purpose other than the reduction of tax liability,

  • Taxing companies controlled and operated in the United States as domestic companies, eliminating the appeal of moving “headquarters” to a post office box in a tax haven country,

  • Requiring additional reporting and disclosure from financial institutions, and

  • Subjecting hedge funds to existing anti-money laundering requirements.

Conclusion

Right now, the tax reform conversations have surfaced due to the healthcare debate. But regardless of what the revenues generated by the reforms could do for taxpayers or when Congress takes this on, it is just the right thing and the fair thing to do.

In fact, reforms to give taxpayers a greater voice in electing officials, to give lawmakers greater incentives to put taxpayers first and to level the playing field for Main Street businesses and Main Street families are long overdue.

By working hard to maintain a status quo, powerful special interests are able to use their influence to slow down progress of common sense reforms.  Congress and the Administration need to be sure to hear all sides of the story when it comes to reform – especially the side that comes from ordinary taxpayers.

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