States with budget shortfalls are struggling to account for the revenue gaps. One way to boost their economic health would be for states and the federal government to close corporate tax loopholes, writes an official for a nonprofit consumer group. A certified public accountant suggests changes in the U.S. tax code would raise revenue but might also cause substantial job losses.
A future newspaper headline reads, “Multinational Corporations Continue to Move to Other Countries in Wake of New Tax Codes.” Think that is a possibility? Absolutely! Given our current tax structure, and despite a 2004 federal law enacted to curb the practice, several U.S. corporations have already moved to other nations.
The United States has the highest corporate tax rate in the world, 39.6 percent. Do corporations pay such rates? Absolutely not! It is partially due to tax havens mentioned in a recent Public Interest Research Group (PIRG) report. Corporations devise complex schemes to avoid having to pay taxes on income generated off-shore. Most tax havens are devised to avoid paying taxes on income generated overseas, not on income generated in the United States.
The problem with taxing overseas income is that other financially stable and economically strong countries do not follow the same tax systems. They compete for corporations to provide economic growth. These countries have adopted a tax exemption for foreign-sourced income and create incentives to do business in their countries.
The PIRG report says governments should eliminate tax haven advantages and force corporations to pay taxes on foreign income. Laws that eliminate corporate tax advantages will surely create more tax. That, however, will also risk the loss of tens of thousands of jobs by corporations relocating.
A good part of a tax CPA’s career is spent with individuals, small businesses and corporations finding ways to mitigate tax liabilities. For a multi-national corporation to seek tax havens is no different than an individual claiming a child-care credit or investing in tax-free municipal bonds. Fault should be placed on the tax system itself. It is built around a belief that the U.S. is the only economy capable of housing major corporations.
Lack of tax revenue is due to an overall tax structure built around an archaic tax system. It attempts to beat tax out of multi-national corporations rather than lure them to stay and reinvest. Implementing policies to encourage U.S. economic growth would create a thriving, prosperous and healthy economy. Laws would allow additional tax to be collected due to investment and domestic job creation. Tax havens should be eliminated, but only because the taxing of foreign income should be eliminated, too. Corporations could then reinvest profits from foreign source income back into the U.S., tax-free. Using the PIRG’s own report, this would allow nearly a trillion dollars of additional profits from multinational corporations to come into the U.S. each year that is currently restricted. This additional domestic investment would result in taxes significantly greater than the amounts projected to be lost through the same tax havens.
So, what is the solution?
* Move to a territorial system whereby taxes are generated where income is earned. Then tax havens are not needed, and profits from foreign income can freely enter the U.S. and be reinvested here.
* Rather than tackling tax havens, Georgia should focus on collecting on-line sales taxes through the Streamlined Sales and Use Tax Agreement, an agreement many states have already adopted.
* It is important our state continues to live within its means through a balanced budget.
