Head Smacker: Trump plan slashes taxes on companies already dodging taxes
On April 26, the Trump Administration released a barebones outline of a tax agenda that would slash taxes on corporations and wealthy individuals. The plan would cut the tax rate by almost 60 percent – down from 35 percent to 15 percent – for corporations and some other businesses. Now, we’re not just talking about mom-and-pop stores here, we’re talking very lucrative businesses like those set up by hedge fund managers, lawyers, and real estate tycoons; Trump himself actually owns 500 such so-called “pass-through” businesses. Let the head smacking begin. (For a summary of what’s in the Trump tax wish list, which slashes taxes for wealthy individuals too, see this from Americans for Tax Fairness.)
In announcing the plan, Treasury Secretary Mnuchin said this country’s 35 percent corporate statutory tax rate “is the most complicated and uncompetitive business rate in the world.” This is far from the first time we’ve heard President Trump and his team make such a claim. As we noted in a recent post, President Trump previously stated, “Right now, American companies are taxed at one of the highest rates anywhere in the world.” While Trump and Mnuchin might believe these claims to be true, we know they are not. In fact, according to the report “Corporate Tax Chartbook: How Corporations Rig the Rules to Dodge the Taxes they Owe” by Americans for Tax Fairness and the Economic Policy Institute, “While the statutory tax rate on corporate income is 35 percent, estimates of the rate corporations actually pay put the effective rate at about half the statutory rate.” And through the use of offshore profit shifting and tax avoidance, multinational corporations actually pay taxes on between just 3.0 and 6.6 percent of the profits they book in overseas tax havens.
Let’s use the pharmaceutical giant Gilead Sciences as an example. Americans for Tax Fairness recently put out a press release describing how Gilead Sciences, a company they’ve reported on previously, has continued to dodge its taxes. According to the release, Gilead Sciences’ offshore profits jumped by one-third in 2016 to nearly $38 billion. This profit increase allowed them to avoid $13 billion in U.S. taxes. How is this possible? Well, last year Americans for Tax Fairness reported how Gilead Sciences boosted its profits by overcharging consumers and government health programs for hepatitis C drugs developed with taxpayer dollars, while shifting profits to Ireland and the Bahamas (well-known tax havens) in order to avoid U.S. taxes. As noted in ATF’s press release, Gilead’s top selling hepatitis C medications cost about $1,000 per pill. To put this into perspective, a worker earning the federal minimum wage of $7.25 per hour would have to work more than 140 hours to earn enough to buy just one pill. That’s how their profits soared.
And a loophole in federal law allows Gilead and other multinational corporations to defer paying U.S. taxes on certain profits held overseas until those profits are brought home, or remitted, to the U.S. parent company. According to ATF, corporations often stockpile these profits year after year to avoid paying their U.S. taxes indefinitely. That’s how Gilead will be allowed to avoid paying the $13 billion in taxes it owes.
Gilead Sciences is not the only company that is gaining profits while individuals and families in the U.S. struggle to get by. According to the chartbook referenced earlier, just 50 companies hold more than 75 percent of untaxed offshore profits; just four companies – Apple, Pfizer, Microsoft, and General Electric – hold one-quarter of all untaxed offshore profits. The repercussions of these companies stashing their profits offshore? A huge loss in revenue for the U.S. The same reports establishes that, “The U.S. Treasury will lose $1.3 trillion over 10 years – about $126 billion a year – due to the deferral of taxes on offshore profits.” While the newly released Trump plan does include a “one-time tax” on the trillions of dollars held by corporations overseas, Secretary Mnuchin said it would be “very competitive,” meaning very low.
In another head smacker, the Trump team said the tax plan released yesterday would eliminate most of the tax breaks that mainly benefit the wealthiest taxpayers. But from the few details shared, we know the plan includes eliminating the alternative minimum tax and the estate tax, which are only paid by those same wealthiest individuals.
And while Team Trump claims the tax cuts will pay for themselves with economic growth and reduced deductions, most experts (even conservatives) disagree. The nonpartisan Committee for a Responsible Federal Budget estimates the plan will result in $5.5 trillion in revenue lost over of decade, and that cost could go as high as $7 trillion. Look – this “voodoo economics” has been tried. Tax cuts in the Reagan and George W. Bush years resulted in higher deficits. Recent tax cuts in Kansas resulted in higher deficits in that state. (An easy-to-digest summary of the history is in a Voices for Human Needs blog post from before the election, here.) Will the deficit-hawking GOP allow the deficit to balloon this much, or will they insist on cuts to critical human needs programs to pay for this enormous giveaway to corporations and the wealthy? That remains to be seen as this tax cut battle goes on.