Wouldn’t it be nice to set up an address in a foreign country, then when tax time rolls around you could tell Uncle Sam, “Sorry, but since I have a foreign address, I don’t owe you as much money.”
That’s what some American corporations are doing – and getting away with – through a process called “inversion.” Well, OK, it’s not as simple as just getting a foreign address, but – in essence – it amounts to the same thing. Corporations are avoiding paying U.S. taxes because of headquarters (addresses) in foreign countries.
However, what sounds like tax fraud is perfectly legal. We should ask ourselves why. But that “why” is easily answered: The U.S. Congress, in cahoots with tax attorneys and corporations, has devised a tax code riddled with loopholes for the benefit of the super-rich. The hired tax experts then twist and stretch to widen every possible loophole.
It’s all legal, unfortunately.
Fortunately, the U.S. Treasury Department, President Barack Obama and some members of Congress (sad to say, only some) say they intend to tighten some of these inversion rules.
Here’s how an inversion works: An American company is restructured so its “parent” becomes a foreign corporation. A recent example is Burger King, which is purchasing Tim Hortons Inc. of Canada, a coffee-and-donut shop chain. Such arrangements amount to a kind of tax shell game, and the bag of tricks consists of internal loans, stock purchases and other financial sleight-of-hand maneuvers so the new “inverted” company can avoid paying U.S. taxes the way it would have before the inversion.
It’s all very complicated, all very legal, and the reason the tax code is so infernally complicated is because it depends upon purposeful complexity to create a labyrinthine framework in which these sneaky loopholes can exist. It also requires the hiring of countless numbers of tax experts and attorneys whom only the loopholers can afford.
In the past 31 years, 70 corporations have “inverted,” with half of those in just the past five years. It’s estimated the lost corporate taxes will cost Americans nearly $20 billion during the next 10 years.
Three companies now considering the inversion process are Pfizer, Walgreens and Medtronic.
In a recent speech aimed at inversions, President Obama called for a new “Economic Patriotism,” in which corporations would become loyal to helping strengthen an American middle class and creating economic conditions for all, not just for some.
That clarion call, corporate-economic patriotism, has been sounded before, to no avail, as so many owners of American corporate giants, made strong by generations of American workers, shipped those jobs overseas lured by low wages. That off-sourcing is a kissin’ cousin to inversioning. Both harm American workers and taxpayers. Both harm America, period.
Let’s hope the Treasury Department puts the screws to the inversion process. But chances are such corporations will find other loopholes in their place. What’s really needed – badly needed and long-overdue – is comprehensive reform of the entire tax code to make it simple, understandable by all and fair across the board. And yes, such a code could include lowering the corporate tax rate, as long as those corporations won’t be allowed to squirm and wiggle their way out of paying their fair share. Some corporations, coddled so long by congressional lackeys, pay virtually no taxes whatsoever.
For years, tax reform was on the high-priority list in the U.S. Congress, but it kept being pushed to the back burner, along with so much other vitally important legislation – immigration reform, to name just one. The current congress, paralyzed by do-nothings and obstructionists, doesn’t even have the guts to debate the strikes against ISIS in Syria and Iraq. How, then, is it going to take on tax reform? And even if it does, we should shudder to think how – tasked with closing loopholes but still beholden to their rich contributors – legislators will close some loopholes, only to cook up even more loopholes in their place this time around.
The bottom line is without draconian campaign reform – disconnecting money and voting – tax reform won’t stand a snowball’s chance in hell. And neither will anything else that could strengthen the working people and the middle class in this country.
