An End To Tax Havens

I guess the President met with Joe Stiglitz and Paul Krugman last week. Ultimately, these one-off meetings mean little in the context of the larger discussion inside the White House, which appears dominated by the axis of Summers and Geithner. But notably, the President came out the very next week with a plan to put a halt to offshore tax havens.

President Obama will present a set of proposals on Monday aimed at changing international tax policy, calling for the elimination of benefits for companies and wealthy individuals that harbor their cash in offshore accounts.

The president and Treasury Secretary Timothy F. Geithner will announce their plans during a late-morning appearance at the White House. The proposed overhaul in the tax code, which will be fully unveiled in the administration’s budget later this week, could help raise $210 billion in revenues over the next 10 years.

One of the key proposed changes would restrict companies from deferring the payment of taxes on profits earned overseas. Administration officials said the plan also would keep firms from taking deductions against their taxes by inflating the amount of foreign taxes they paid.

Mr. Obama raised the idea frequently during his presidential campaign. In a speech to Congress in February, as he outlined his priorities for the year, he pledged to make the tax code more equitable by “finally ending the tax breaks for corporations that ship our jobs overseas.”

We have heard the "end tax breaks for companies that ship jobs overseas" line since the Kerry campaign. But what we're really talking about here goes back even further than that. The Obama campaign wants companies to pay their taxes under the law. That's pretty much it. As quoted in the press release put out by the Administration, corporations have a 2.3% effective tax rate on their foreign earnings. That's absurd and wrong. The use of tax havens in the Cayman Islands and elsewhere suck wealth out of the country and give corporate interests a free ride to use the commons at virtually no cost. The tax breaks for shipping jobs overseas is only a part of this plan. Here's President Obama with more.

The way we make our businesses competitive is not to reward American companies operating overseas with a roughly 2 percent tax rate on foreign profits; a rate that costs -- that costs taxpayers tens of billions of dollars a year. The way to make American businesses competitive is not to let some citizens and businesses dodge their responsibilities while ordinary Americans pick up the slack [...]

For years, we've talked about ending tax breaks for companies that ship jobs overseas and giving tax breaks to companies that create jobs here in America. That's what our budget will finally do. We will stop letting American companies that create jobs overseas take deductions on their expenses when they do not pay any American taxes on their profits. And we will use the savings to give tax cuts to companies that are investing in research and development here at home so that we can jump start job creation, foster innovation, and enhance America's competitiveness.

For years, we've talked about shutting down overseas tax havens that let companies set up operations to avoid paying taxes in America. That's what our budget will finally do. On the campaign, I used to talk about the outrage of a building in the Cayman Islands that had over 12,000 business -- businesses claim this building as their headquarters. And I've said before, either this is the largest building in the world or the largest tax scam in the world.

And I think the American people know which it is. It's the kind of tax scam that we need to end. That's why we are closing one of our biggest tax loopholes. It's a loophole that lets subsidiaries of some of our largest companies tell the IRS that they're paying taxes abroad, tell foreign governments that they're paying taxes elsewhere -- and avoid paying taxes anywhere. And closing this single loophole will save taxpayers tens of billions of dollars -- money that can be spent on reinvesting in America -- and it will restore fairness to our tax code by helping ensure that all our citizens and all our companies are paying what they should.

We're talking about what amounts to an illegal fraud of the public commons, to the tune of at least $21 billion dollars annually. Corporations have grown accustomed to it and see it as their birthright. Their sycophants in the media try to turn history on its head and claim that the founding principle of what it means to be an American is to cheat on taxes.

SCARBOROUGH: They tell me though it's all legal - ALL LEGAL.

BURNETT: Of course it is.

SCARBOROUGH: There's a big difference between tax avoidance and being an all out tax cheat.

BURNETT: That's right. Isn't it your obligation in this country - there is a tax code for a reason, to take advantage of every bit of it you can and pay as little as you can.

I'd be fine with lowering the corporate tax rate if I thought corporations actually paid it. But they don't. They "avoid" (not cheat! Don't you dare say cheat!) them and increase the burden on working people. And it's time this stopped. Obviously, the corporate interests who want to maintain the status quo will fight like hell to stop this. Here's Robert Gibbs at his presser today;

Q Okay. And on the announcement he made today about international tax policy, several big corporations are lined up against it, the deferral provision -- Pfizer, Oracle, Microsoft and trade associations like the Chamber of Commerce, Business Roundtable. And I'm just wondering how you think you're going to overcome that opposition and if you think this faces a big fight in Congress.

MR. GIBBS: Well, I don't think change is ever easy and I think whenever you're taking on some bigger interest that mountain gets a little bit steeper.

But the President strongly believes that the policy that he outlined, the steps that we have to take to close tax loopholes and ensure some fairness in this process is the right policy for America and the right policy for American business. By closing these loopholes and replacing these tax advantages with fairness, using a portion of the money that's recouped to make or to fund research and development and experimentation tax credit for the next 10 years is an important investment for American business.

Since 1981 the R&D tax credit has expired on 13 separate occasions. So providing business with some certainty for research and development we think is important. And as the President said throughout the campaign, we have -- our tax code has an incentive that provides -- an incentive that rewards companies that are investing overseas at the expense of investing here in America. We know we're going to take on some tough interests in that, but the President believes this is a fight we should have and one that we can win.

As you can see, corporations would get a permanent R&D tax credit out of this, which would save them billions in the exchange, in effect a bribe that must be offered in exchange for getting them to actually pay their taxes.

I'm glad Obama's making this fight, and when you combine it with his comments on the shrinking of the financial sector, maybe we can say that the Krugman/Stiglitz meeting did the trick.

They Won't Have Us Follow The Money

The Politico writes a hit piece about Alan Grayson today (no link, they're trolling for one). They, and by proxy the Villagers and Republican concern trolls, are just horrified at his uncouth statements like calling Rush Limbaugh a "has-been hypocrite loser” who “was more lucid when he was a drug addict.” (I think Rush is a constituent, so good luck winning back his vote!)

What they're really mad about is that he hired a blogger, Matt Stoller, as his senior policy adviser, and he asked officials of the Federal Reserve what they're doing with nearly $2 trillion dollars of taxpayer money. This has become a feature of the financial meltdown - the utter lack of disclosure.

Banks like BofA will not disclose the timing of the bonuses Merrill Lynch handed out when they were on the verge of collapse, to the extent that people like Andrew Cuomo have to issue subpoenas to get some transparency. UBS will not disclose the names of thousands of Americans hiding their cash in Swiss bank accounts to dodge taxes, to the extent that Congress is attempting to rewrite the laws to crack down on offshore tax havens. AIG will not disclose the counterparties who are getting hundreds of billions of dollars in bailout money from the government, which is a major and evolving scandal that Josh Marshall and the TPM crew are trying to wrap their arms around. This in particular appears to be an unbelievable scheme, almost a black bag job, where the Fed drops money into an account and AIG picks it up so that everyone can maintain the fiction that it isn't a direct cash transfer. There's more here, including a description of how derivative counter-parties got away with murder in the 2005 bankruptcy bill, and how their taking all the equity if AIG went down would trigger a real and thoroughgoing collapse (as if one isn't imminent anyway).

But it's more than just AIG. The Fed won't release the names of any of the recipients of nearly $2 trillion in loans over the past two years. Bernie Sanders has legislation to force disclosure. CREW is filing a Freedom of Information Act request to find out. In fact, such requests have already been filed, by Bloomberg News and Fox News, only to be refused, despite being subject to FOIA.

As CREW explained in its request, the documents it seeks are essential to understanding and assessing the government's response to the devastating economic financial crisis our nation faces. CREW's Chief Counsel, Anne Weismann, put it like this:

Telling Americans that they are not entitled to know which banks are receiving 2.2 trillion dollars of taxpayer money is unacceptable under any terms. This administration has promised transparency and we expect it to deliver.

What is pretty clear is that a lot of this money is going to the banksters in backdoor bailouts that do nothing for the greater economy. Noriel Roubini writes:

“In the meantime, the massacre in financial markets and among financial firms is continuing. The debate on “bank nationalization” is borderline surreal, with the U.S. government having already committed–between guarantees, investment, recapitalization and liquidity provision–about $9 trillion of government financial resources to the financial system (and having already spent $2 trillion of this staggering $9 trillion figure).

Thus, the U.S. financial system is de facto nationalized, as the Federal Reserve has become the lender of first and only resort rather than the lender of last resort, and the U.S. Treasury is the spender and guarantor of first and only resort. The only issue is whether banks and financial institutions should also be nationalized de jure.

. . . AIG, which lost $62 billion in the fourth quarter and $99 billion in all of 2008 and is already 80% government-owned. With such staggering losses, it should be formally 100% government-owned. And now the Fed and Treasury commitments of public resources to the bailout of the shareholders and creditors of AIG have gone from $80 billion to $162 billion.

News and banks analysts’ reports suggested that Goldman Sachs got about $25 billion of the government bailout of AIG and that Merrill Lynch was the second largest benefactor of the government largesse. These are educated guesses, as the government is hiding the counter-party benefactors of the AIG bailout.”

The inability to disclose is intuitively linked to an inability to tell the truth - the banks are insolvent, the government already essentially owns them, and this inability to admit what's completely obvious is destined to cripple the economy permanently unless action is taken.

Here’s how the pattern works: first, administration officials, usually speaking off the record, float a plan for rescuing the banks in the press. This trial balloon is quickly shot down by informed commentators.

Then, a few weeks later, the administration floats a new plan. This plan is, however, just a thinly disguised version of the previous plan, a fact quickly realized by all concerned. And the cycle starts again.

Why do officials keep offering plans that nobody else finds credible? Because somehow, top officials in the Obama administration and at the Federal Reserve have convinced themselves that troubled assets, often referred to these days as “toxic waste,” are really worth much more than anyone is actually willing to pay for them — and that if these assets were properly priced, all our troubles would go away [...]

So why has this zombie idea — it keeps being killed, but it keeps coming back — taken such a powerful grip? The answer, I fear, is that officials still aren’t willing to face the facts. They don’t want to face up to the dire state of major financial institutions because it’s very hard to rescue an essentially insolvent bank without, at least temporarily, taking it over. And temporary nationalization is still, apparently, considered unthinkable.

But this refusal to face the facts means, in practice, an absence of action. And I share the president’s fears: inaction could result in an economy that sputters along, not for months or years, but for a decade or more.

This is why the establishment is mad at Alan Grayson. He's willing to say this kind of thing out loud.

The Torture Of Corporate Tax Rates

So Grover Norquist associates corporate tax rates to waterboarding, which seems perfectly apt, right?

NORQUIST: The other tax cut you could do is cutting the corporate rate. The U.S. corporate rate is 35 percent; the European rate is 25 percent. Obama is a more international guy, so we should be close to the European average. We’ll stop torturing people, we’ll stop torturing corporations, and that will make us more like Europe.

Of course, he's talking about the terrible burden of the corporate tax RATE. The only burden this actually puts on corporations is that they have to hire creative accountants to get them to avoid those taxes. And they do an incredibly good job.

Most of America's largest publicly traded corporations -- including several that are receiving billions of dollars from U.S. taxpayers to finance their recovery -- have set up offshore operations that could help them avoid paying U.S. taxes on their profits, a government study released yesterday found.

American International Group, Bank of America, Citigroup and Morgan Stanley are among the companies that are getting bailed out by U.S. taxpayers while having subsidiaries in locations where they can avoid paying U.S. taxes, according to the Government Accountability Office.

Of the 100 largest public companies, 83 do business in tax-haven hotspots like the Cayman Islands, Bermuda and the British Virgin Islands, where they can move their income into tax-free accounts.

It is all legal, but it could come to an end, given the dire condition of the U.S. economy and President-elect Barack Obama's campaign pledge to close this popular business tax loophole. The Treasury estimates that it loses $100 billion a year in tax revenue as a result of companies shipping their income off shore, and congressional leaders are vowing to introduce legislation forcing big companies to pay full freight.

I would be all too happy to lower the corporate tax rate if concurrently we ended every single loophole and tax credit and mandated exactly 25 of all income, or a lesser percentage of gross sales, to flow into the US Treasury. This actually would boost revenues, because as it stands now, most US firms paid no taxes in the 1990s and two-thirds paid none from 1998 to 2005. The statistics are astounding and they have led to the United States having the second-lowest effective tax rate in the world.

But I suspect ol' Grover wouldn't like that. Because he hates America.

"This is kind of like economic patriotism," (Sen. Byron) Dorgan said. "Americans were told you have to pony up some money to help these companies. And it's rather infuriating for them to find out now that those companies, when they were profitable, didn't want to pay taxes and found clever ways to hide their money overseas."

Yes, I questioned his patriotism.

War Made Easy

In the least patriotic move of all time, private military contractors who get rich off of war and occupation set up offshore accounts to avoid paying taxes. They get their entire windfall of an income from the government and refuse to give their fair share back.

Congress is finally moving to shut one of the more egregious forms of Iraq war profiteering: defense contractors using offshore shell companies to avoid paying their fair share of payroll taxes. The practice is widespread and Congressional investigators have been dispatched to one of the prime tax refuges, the Cayman Islands, to seek a firsthand estimate of how much the Treasury is being shorted.

No one will be surprised to hear that one of the suspected prime offenders is KBR, the Texas-based defense contractor, formerly a part of the Halliburton conglomerate allied with Vice President Dick Cheney. According to a report in The Boston Globe, KBR, which has landed billions in Iraq contracts, has used two Cayman shell companies to avoid paying hundreds of millions in payroll, Medicare and unemployment taxes.

Right now it's a loophole, but Senators Kerry and Obama have legislation to plug it, and as long as Max Baucus can be kept far away from the bill, they ought to be able to do it. But there's more. The House voted recently to deny government contracts to companies that don't pay their corporate taxes. This is a COMMON occurrence which over 25,000 defense contractors have taken advantage of.

And some people will go on about "runaway spending" and "earmark reform." Please. The budget could be balanced, and public health programs not raided as the President wants to do, simply by no longer funding tax evaders and thieves until they pay their fair share and stop wasting taxpayer money on useless weapons programs and endless overruns. This is one of those situations where practically everyone looks the other way and pretends the problem right in front of us doesn't exist. The military budget, and military contractors, are bankrupting the country. Bottom line.

Hopefully it got through that I'm questioning Halliburton's patriotism.

Treason Has Its Privileges

Look how anodyne this significant bit of information is presented in this AP report on Halliburton's third-quarter profits:

HOUSTON - Halliburton Co. continues to benefit from placing greater emphasis on its operations in the Eastern Hemisphere, where expanding business helped the company post a 19 percent rise in third-quarter earnings.

The Houston-based oilfield services company said Sunday its net income rose to $727 million, or 79 cents a share, in the July-September period from $611 million, or 58 cents a share, in the year-ago period.

The most-recent results included a favorable income tax benefit of $133 million, or 15 cents a share.

"Placing a greater emphasis" on Eastern Hemisphere operations is a bit of code. What they're trying to say is that Halliburton ditched the country that provided the bulk of its fortune over the past six years, instead moving its headquarters to Dubai. The "favorable income tax benefit" is nothing but TAX AVOIDANCE as a result of that offshoring.

If an individual tried to do this, they would be thrown in jail. It occurs to me at points like this just what a bunch of traitors these corporate CEOs are, particularly defense contractors. They make practically their entire living off the largesse of the federal government, and then when it's time for them to give back to a country that has given them so much, they skip town like they're walking out on lunch before the bill.

Let's call this what it is: treason. Real patriots love their country so much they think it's worth paying for. Paper patriots like these "defense" contractors want nothing more than to bleed America dry. Similarly, Blackwater is being questioned for saving tens of millions of tax dollars by classifying its personnel as "independent contractors. Whether or not this is an illegal action is an open question, actually. But there's no question that the purpose of the classification is to push the burden of taxation onto the individuals, and ultimately to save money. These corporations have absolutely no connection to this country anymore, which makes you wonder why they are still chartered to do business here.