How much richer would the U.S. economy, and by extension -- the general public -- actually be if major companies paid their full tax burden rather than employing sophisticated tax schemes to avoid doing so?
One of those schemes is called the "double Irish", and Apple(AAPL), Google(GOOG) and Facebook(FB) have been doing it for years. It saves them, and other companies, over $60 billion combined on their taxes. The thing is, of course...it's completely legal.
See: Google's 'Double Irish' Tax Scheme Saved The Company $3.1 Billion -- C|Net
This has been reported before. Bloomberg had at it back in 2010. Nothing's changed. And nothing's changed because -- until a judge interprets the law differently -- companies that shift money around from one offshore entity to another are not breaking U.S. tax rules.
The U.S. statutory corporate income-tax rate is 35%. In the U.K., Google’s second-biggest market by revenue, it’s 28%. Those rates decline, of course, after deductions. You might think it declines by half. But half of the statutory rate is not even close to what Google has paid in taxes effectively in recent years; it pays under 10%. So does Apple.
See: Facebook Mirrors Google's Offshore Tax Scheme -- Forbes
The scheme is employed by certain large corporations, involving the use of a combination of Irish and Dutch subsidiary companies to shift profits to low or no tax jurisdictions. It sounds like a special in some Dublin pub: a double Irish with a Dutch sandwich; and the major tech companies in the U.S. are using it. The technique involves sending profits first through one Irish company, then to a Dutch company and finally to a second Irish company headquartered in a tax haven, Investopedia describes it. This technique has allowed certain corporations to dramatically reduce their overall corporate tax rates.
See: GE's Strategies Let It Avoid Taxes All Together -- The New York Times
We all want to keep the money we earn. Companies are no different. But, for the sake of argument, what if all of that tax money was going back to Uncle Sam?
Using various sources from the American Enterprise Institute to the U.S. Census Bureau, infographics firm Visual Economics came up with this graphic to estimate what that $60 billion in missing tax revenue could have been used for in the U.S.
See: Apple's 9.8% Effective Tax Rate Is Mind Boggling --Forbes
For starters, they estimated that it would pay for Obamacare for four million children and provide immunization for 6.5 million kids. They've also estimated that it would pay the salary of the entire California Highway Patrol unit, or CHIPS (had to say that. Ponce!), for four full years.
See: Corporations That Pay Nothing In Taxes Say They Pay Too Much -- Think Progress
I didn't check the facts. But here's the image attached. All told, it's a circular "what if?" argument with no real answer. What if Facebook paid all its taxes and didn't higher 500 people paying a hundred grand a year? What if EVERYONE paid all their taxes, including the guy making $400,000 a year in New York? What if your town raised property taxes; would your public school be able to hire more teachers? The better question is, what if governments didn't serve up this double Irish with a Danish sandwich in the first place?
Over a four years period from 2008 to 2011, Corning Inc. was one of 26 companies that managed to avoid paying any American income taxes, even though it earned nearly $3 billion during that time, according to research done by Citizens for Tax Justice.
See: Ten Companies Whose Overshore Profits Are Exploding -- Citizens For Tax Justice/The Huffington Post
Corning received tax refunds 2008, 2009 and 2010 due to an U.S. research & development tax credit. In 2011, their effective tax rate soared to 36% and Susan Ford, vice president of tax at the company, told House Ways and Means Committee last July that America’s high corporate tax rate was putting her company at a disadvantage. Their foreign effective tax rate was 17% after deductions.
See: Obama Might Back Territorial Tax System -- Reuters
I looked into this last year and produced this slide show that boils it down nicely, I think. In short, the U.S. is not even close to being over taxed. Taxation is a hot-button issue. But it is also a complicated one. Corning did have large tax incentives that drastically decreased its tax burden. When those incentives were removed, their tax load ballooned to twice that of their offshore entities. It is no wonder, then, that companies that do not receive any government incentives would do all they can to reduce their effective tax rate. Until someone in Washington can figure out how to mend American tax law, stories like this will continue. Americans will get angry. And finally, something will get done.
