By Carl Levin
Special to The Washington Post
Front and center in the presidential campaign is tax avoidance by very wealthy individuals such as Donald Trump and highly profitable corporations such as Apple.
Use of unjustified tax loopholes by individuals and tax havens by multinational corporations has been tolerated for too long. Trump's tax-avoidance schemes will remain at least partially hidden as long as he gets away with keeping his tax returns secret. But Apple's tax gimmicks are well known.
The profits from Apple's overseas sales of products designed and developed in the United States should be taxed in the United States. But Apple has until now dodged such U.S. taxes by transferring the rights to its intellectual property to itself in Ireland, through shell "subsidiaries" with few employees and little physical presence or tangible economic activity.
Apple even had the chutzpah to claim those Irish subsidiaries had no obligation to pay taxes anywhere, other than the token less than 1 percent it paid to Ireland under a special arrangement.
After a bipartisan Senate investigation led by Sen. John McCain (R-Ariz.) and me exposed Apple's tax dodging in 2013, it was not surprising that Europe went after the company. Harder to understand is why the Internal Revenue Service has failed to stake a claim to U.S. taxes on that revenue for more than a decade. It has remained passive, and Europe stepped in to fill the vacuum.
Shame on Apple for dodging U.S. taxes. Shame on the IRS and the U.S. treasury for failing to challenge Apple's tax avoidance.
Now, Treasury is attacking the European Commission for shutting down Apple's tax dodging, even though the commission openly invited the United States and other countries to seek collection of whatever share of the back taxes they think is theirs. Instead of accepting that offer, Treasury is threatening a tax war.
The next administration should chart a new course. Curbing tax havens such as Ireland directly serves U.S. interests by helping to limit powerful tax incentives for U.S. corporations to move revenue offshore. U.S. firms already hold an incredible $2.4 trillion in profits overseas, mostly in tax havens, dodging an estimated $700 billion in U.S. taxes.
Corporate tax dodging denies the U.S. Treasury and U.S. communities resources they desperately need. The water crisis in Flint, Mich., is a tragic example of public services grown dangerous from lack of investment. All across the United States, pipes deliver low-quality water, roads crumble, bridges sag. AAA says motorists spend $3 billion a year repairing the havoc caused by potholes. Civil engineers estimate we need $3.6 trillion to fix all the infrastructure that's broken.
But rather than doing their part to support the nation that helps make their success possible -- and where their products are designed, developed and supported in many ways, including through tax credits and patent protection -- some big U.S. corporations duck their responsibilities. Apple alone has stashed $215 billion in profits offshore, avoiding almost $66 billion in U.S. taxes, according to Citizens for Tax Justice.
U.S. Treasury Secretary Jack Lew charges the European Commission with trying to collect taxes it's not entitled to from U.S. companies. The irony is that the United States allows U.S. corporations to indefinitely postpone paying U.S. taxes on overseas profits, thanks to a loophole called "deferral." If we maintain that other countries can't tax those profits, and we effectively won't tax them, then what we're really saying is that globe-spanning U.S. companies shouldn't be taxed on those profits at all, even though most U.S. companies can't avoid taxes that way.
Sixty-five years ago, $1 out of every $3 collected in federal taxes came from corporations - now it's $1 in $9. And when corporations dodge their taxes, the rest of us pick up the tab by paying higher taxes ourselves, suffering defective public services or taking on more public debt.
The IRS has been passive for too long. The next administration should reinvigorate tax enforcement aimed at profitable multinational corporations paying little or no tax. It should also revamp the regulations used by multinational companies in unintended ways to dodge U.S. taxes on their offshore profits.
Congress should also do its part by enacting legislation to stop some of the worst abuses. Sen. Sheldon Whitehouse (D-R.I.) and others are championing the Stop Tax Haven Abuse Act. Another bill would charge corporations an "exit tax," such as what Hillary Clinton has proposed, if they abandon the United States - collecting the deferred taxes on their offshore cash. Other bills would make it harder for tax-dodging multinational companies to access their overseas profits tax-free or deny them federal contracts. There's also a bill to end the deferral tax loophole altogether.
The United States should act to end corporate tax dodging and start going after the $100 billion we lose each year due to profit shifting, instead of criticizing other countries willing to take on highly profitable and powerful multinational corporations.
Levin, a Democrat, represented Michigan in the U.S. Senate from 1979 to 2015.
(c) 2016, The Washington Post
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