The Bait-and-Switch on Taxing Corporations’ Foreign Revenues
The Tax Cuts & Jobs Act lowered tax rates so job creators would return to America after decades of fleeing to more tax-friendly shores. That’s exactly what is happening.
-- From a tweet by Congressman Mike Kelly on Feb. 11, 2020
It turns out Mike Kelly’s Tax Cuts and Jobs Act was an example of the old bait-and-switch to help large corporations pay billions of dollars less in taxes on money shifted overseas.
This was explained in a December, 2019, New York Times article titled, “How Big Companies Won Tax Breaks From the Trump Administration,” that carried the subhead, “As the Treasury Department prepared to enact the 2017 Republican tax overhaul, corporate lobbyists swarmed – and won big.”
“… not long after the bill became law in December 2017, the Trump administration began transforming the tax package into a greater windfall for the world’s largest corporations and their shareholders,” the Times article said. “The tax bills of many big companies have ended up even smaller than what was anticipated when the president signed the bill.”
Starting in early 2018, Treasury Department officials found themselves busier than a one-armed paperhanger as they dealt with lobbyists seeking to protect companies from the few parts of the tax law that would require them to pay more taxes.
Lobbyists targeted a pair of major new taxes that were supposed to raise hundreds of billions of dollars from companies that had been avoiding taxes in part by claiming their profits were earned outside the United States. Then the Treasury Department went to work to do their bidding.
As a result, companies continue to shift hundreds of billions of dollars to overseas tax havens, ensuring that huge sums of corporate profit remain out of reach of the U.S. Government. The Internal Revenue Service is collecting tens of billions of dollars less in corporate taxes than Congress projected, inflating the tax law’s price tag.
The Organization for Economic Cooperation and Development calculated that in 2018 the United States experienced the largest drop in tax revenue of any of the group’s 36 member countries. The United States also had the largest budget deficit of any of those countries.
How did this happen? The Times’ story explained that the Treasury Department ended up writing rules that benefited the companies, making sure Republicans’ claim that these businesses would no longer get away with avoiding taxes by putting them in foreign accounts was nothing more than a lie.
Laws like the Tax Act are carried out by federal agencies that must formalize them by writing rules and regulations. The treasury official in charge of writing the rules in this case had previously worked in the private sector counseling companies on the same sorts of tax-avoidance arrangements that the new law was supposed to discourage.
The Treasury carved out exceptions to the law through a series of obscure regulations that mean many leading American and foreign companies will owe little or nothing in new taxes on offshore profits. Companies were effectively let off the hook for tens if not hundreds of billions of dollars in taxes that they would have been required to pay.
Helping in this corporate lobbying campaign was the chaotic manner in which the bill was rushed through Congress. It was sloppily written, which gave the Treasury Department extra latitude to interpret the law, the Times reported.
“Treasury is gutting the new law,” said Bret Wells, a tax law professor at the University of Houston. “It is largely the top 1 percent that will disproportionately benefit -- the wealthiest people in the world.”