[Hi, friends: a little late this week due to work crush…to punish me, if everyone signs up ONE more person you know to this newsletter, just think of how many extra people could give me grief when I slack]
Long Take
The answer is, Mr. President: these 55 profitable corporations paid ZERO taxes or less (“less”=you and me gave them a honking big refund). Nice legal robbery if you can do it, huh? This we know thanks to the usual outstanding work of my friends at the Institute for Taxation and Economic Policy (ITEP), who everyone should follow. Here are the facts in a nice table:
Here are a few points from ITEP:
The companies avoiding income taxes in 2020 represent very different sectors of the U.S. economy:
Food conglomerate Archer Daniels Midland enjoyed $438 million of U.S. pretax income last year and received a federal tax rebate of $164 million.
The delivery giant FedEx zeroed out its federal income tax on $1.2 billion of U.S. pretax income in 2020 and received a rebate of $230 million.
The shoe manufacturer Nike didn’t pay a dime of federal income tax on almost $2.9 billion of U.S. pretax income last year, instead enjoying a $109 million tax rebate.
The cable TV provider Dish Network paid no federal income taxes on $2.5 billion of U.S. income in 2020.
The software company Salesforce avoided all federal income taxes on $2.6 billion of U.S. income.
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And some context:
Number 1: this isn’t new per se. There is a very, very long history of corporate legal thievery. It’s robbery that David Cay Johnston called “Perfectly Legal”—and it’s robbery engineered by our truly screwed up campaign finance system because these corporate mostly white dudes just buy off politicians of both parties to write tax laws that let them pull off this annual heist.
Number 2: The CARES Act, ironically, made this heist worse. Again, ITEP (“TJCA” refers to the 2017 GOP Robbery Tax bill also known as the “Tax Cuts and Jobs Act”):
Some companies used a CARES Act provision to “carry back” 2018 or 2019 losses to offset profits they reported in prior years, resulting in a rebate that reduced their 2020 taxes, in some cases to less than nothing.
Tax law previously allowed companies to carry back losses to offset profits in two prior years. The TCJA bars companies from doing this (although it still allows companies to carry losses forward to offset profits in future years). However, the CARES Act temporarily restored companies’ ability to carry back losses and, incredibly, is more generous than the pre-TCJA rules.
The CARES Act loosened rules for the treatment of losses not just in 2020, but also retroactively for losses reported in 2018 and 2019, which have nothing to do with the pandemic. Even worse, it allows corporations to carry back losses as far as five years. This means losses incurred in 2018, 2019, and 2020 can offset income taxed at the higher 35 percent tax rate in effect before 2018. Taxing profits at one rate while allowing losses to produce savings at a higher rate is an invitation for companies to play games, moving profits and losses around from one year to another on paper to reduce their tax bills.
The limited disclosures made by these 55 companies suggest that this opportunity is not lost on the leaders of profitable firms. These companies enjoyed at least $500 million of tax breaks last year from the CARES Act provision liberalizing loss carrybacks. In at least four cases (Mohawk Industries, Telephone & Data Systems, Treehouse Foods and Westlake Chemical), the CARES Act’s temporary tax benefit for loss carrybacks exceeds the full 21 percent tax liability these companies would have paid on their pretax profits in 2020 if no tax breaks were available to them.
The total tax benefits these 55 companies enjoyed from the carryback provisions are likely even larger. Several companies acknowledged substantial CARES Act benefits but did not separate the effect of the carryback changes. Other companies very likely chose not to disclose CARES Act benefits because their size was not “significant” for financial reporting purposes.
Number 3: somewhat related and just because it gives me another opportunity to slam Jeff Bezos—Amazon has been one of the worst legal tax cheats (I used the word “cheats” intentionally because Amazon, and others, are effectively cheating you and every other regular person by forcing more tax burden on to average wage earners). So, when Jeff Bezos declares he supports raising the corporate tax rate, remember that (a) he doesn’t ever say to what LEVEL and (b) he’s already pocketed so much money from dodging taxes for years, and holding local and state governments hostage for more tax breaks in return for Amazon setting shop in town, that the level the federal corporate tax rate will likely to rise to will never claw back what Bezos already made off of every taxpayer.
Which leads me to: in my humble opinion, Joe Biden is making a big mistake by seeking to raise the corporate tax rate to 28 percent, up from the Trump tax plan rate cut to 21 percent—which is still way below the 35 percent rate pre-Trump.
When I ranted about this the day it was announced, Matt Gardner of ITEP wrote me: “Dude’s taking no prisoners with the international stuff though. 21% on all offshore profits is a lot bigger than what we’re doing now. And while it depends on the details, 28 percent with a good minimum tax backstop could be a hell of a lot better than 28 percent with no minimum tax.”
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First, big props to Matt for referring to POTUS as “dude”. Second, Matt has a point, explained further by his ITEP colleague Steve Wamhoff:
Biden proposes to ensure that offshore profits of American corporations are all taxed at a total rate (including foreign taxes and U.S. taxes) of at least 21 percent. This would be true whether a company claims to earn those profits in Canada, a country where U.S. corporations do a lot of business, or the Cayman Islands, where corporations claim to earn impossibly large profits even though there are almost no real business opportunities there.
Like similar proposals in Congress, this would shut down the long-standing problem of American corporations using accounting gimmicks to claim that their profits are earned by subsidiaries in countries with a very low or no corporate tax (countries known as tax havens).
Drafters of the Trump tax law could have stopped this, but instead put in place rules that continue to encourage offshore tax dodging by taxing offshore profits far more lightly than domestic profits. They arguably made the situation worse because these rules encourage American companies to shift real assets and operations—and the jobs that go with them—offshore.
The Trump tax law exempts offshore profits of American corporations from U.S. taxes unless they exceed a 10 percent return on tangible investments held offshore. In other words, a U.S. company does not pay U.S. taxes on profits earned by their offshore subsidiaries unless those profits exceed 10 percent of the tangible assets (machines, factories, office buildings, oil wells) the company has offshore. As a result, a company could avoid U.S. taxes by moving more tangible assets offshore.
For example, consider an American corporation that has operations in the United States and in Ireland. It has $1 billion in tangible assets in Ireland and earns around $150 million there in most years. Of that $150 million, $100 million is exempt (because 10 percent of $1 billion is $100 million), but the remaining $50 million is subject to U.S. taxes. The company might avoid U.S. taxes altogether by moving more operations to Ireland. Increasing its tangible assets held there from $1 billion to $1.5 billion would result in an exemption of $150 million (10 percent of $1.5 billion) from U.S. taxes.
Meanwhile, even offshore profits subject to U.S. taxes (profits that the Trump law calls Global Intangible Low-Taxed Income, or GILTI) receive more favorable treatment than domestic profits. Domestic corporate profits are subject to a rate of 21 percent, while GILTI is effectively taxed at half that rate, just 10.5 percent.
It gets worse. Companies can effectively pay less on their GILTI. American companies can claim a credit against their U.S. taxes for taxes they paid to foreign governments on their offshore profits, the foreign tax credit (FTC). This makes sense because it prevents double taxation. But a long-standing problem is that American companies can pool their profits and losses abroad to calculate their FTCs and U.S. taxes. Effectively this means they use the taxes they pay in high-tax countries to shield their tax haven profits from U.S. taxes.
The bottom line is that the corporate tax system created under the 2017 law rewards corporations that can transform U.S. profits into foreign profits, whether this means shifting profits on paper or moving business operations abroad.
Biden’s proposals would shut down all of this. He proposes to do away with the 10 percent return exemption and subject all offshore profits of American corporations to a rate of 21 percent. They would continue to receive the FTC if they pay taxes to foreign countries where they operate, but only on a country-by-country basis. If their foreign tax rate is less than 21 percent, they would pay the remainder to the United States. They would gain nothing from routing profits through subsidiaries in Bermuda or the Cayman Islands because those profits would be effectively taxed at 21 percent.
Biden’s plan would also address the problem of foreign corporations stripping profits out of the United States, and the related problem of American corporations becoming “foreign” through inversions so that they could do the same thing.
American subsidiaries of foreign corporations sometimes engage in gimmicky transactions to make payments to their parent companies—like an interest payment or a royalty—that the American subsidiary deducts from the income it reports to the IRS. This effectively sends profits out of the country for tax purposes.
The Trump tax law applies a weak minimum tax (called the Base Erosion and Anti-Abuse Tax, or BEAT) that supposedly discourages this. Biden’s plan replaces the BEAT with a stronger measure that denies “deductions to foreign corporations on payments that could allow them to strip profits out of the United States if they are based in a country that does not adopt a strong minimum tax.”
We will need more details before we understand exactly how effective this would be, but it appears that American subsidiaries would not be able to deduct these payments unless the parent corporation is in a country that has a strong minimum tax (perhaps even one comparable to the 21 percent tax the United States would impose on offshore profits). This would remove the benefit of stripping earnings out of the country.
And I also am aware that even the 28 percent rate is getting a lot of heat from Fifth Columnist Joe Manchin, who never met a corporate donor he wouldn’t get down on his Senatorial knees to pleasure. And Biden needs, as you’all know, every Democratic vote to stay with him.
BUT: the job of a president—at least a president who is pretending to be transformative—is to set the highest bar possible and use the bully pulpit to show people reality, though setting the rate at 28 percent does illuminate the contours of Biden’s (narrow) economic philosophy which has always been quite clear, separate and aside from the need to respond in a large fiscal way to the pandemic.
And the reality, as this graph shows, is that corporate tax revenues as a share of the gross domestic profit has been a pretty steady overall decline over several decades.
Raise that rate. And raise it high!
Short Takes
Speaking of slamming Amazon (I could actually write a weekly newsletter called “Bezos Sucks”), Amazon’s defeat of the union organizing drive in Bessemer Alabama hurts, for sure. But, I would counsel folks to not fall into the trap of “I guess people don’t support the union” or “I guess Amazon is doing right by it workers” because doing so means ignoring this reality: We live in a deeply corrupt economic system that makes it almost impossible to organize unions within the legal frame work of the National Labor Relations Act.
Think of it this way: let’s say you are Candidate Joe Bob running for President of the United States. And your opponent is Rosa Parks. You, Joe Bob, get to campaign and meet voters in all 50 states, every day, on television and in their mailboxes—and you send them a check every two weeks because you have the name and address of every single voter. Rosa Parks, on the other hand, has to do ALL her campaigning from outside the country, standing on the border of Canada or Mexico. On top of that, Joe Bob will hire vicious consultants to tear down Rosa Parks every single day (well, I guess that already happens in real life in politics).
That is effectively the landscape for any union organizing campaign: the company controls access to workers, and bludgeons workers with a vicious, no-holds barred, scorched-earth campaign.
Point is: nothing about labor laws creates a level playing field. A multi-billion industry exists to attack and destroy unions every single day—and that industry lives inside, principally, every major big corporate law firm in America. And if by chance a union squeaks out a win in the balloting, that industry, then, mobilizes to block workers’ chances to get a first contract—further undermining the union.
And that’s just the tip of the iceberg. The PRO Act would fix some of this—but it has somewhere between zero and zilch chances of passing the Senate, partly because of Fifth Columnist Joe Manchin.
Solution: I don’t have an easy answer—other than mass sit-down general strikes of the kind in the early part of the 20th Century that helped create some of the modern-day union. More on that in future newsletters.
The infrastructure plan: I’m going to dig into this a bit more in the coming weeks. In the meantime, I chatted with The Hill’s Jonathan Easley recently about the infrastructure plan. The headline—not the reporter’s fault—was funny— “White House moves to reshape role of US capitalism”. Far from it but… it is another teachable moment for progressives, per my quote:
Some progressives roll their eyes at comparisons between Biden and former President Franklin Roosevelt, whose New Deal to pull the U.S. out of the Great Depression is viewed by many as a framework for what Biden is trying to do.
They say the infrastructure package is fine but that the realities of politics and Biden’s moderate leanings have resulted in a bill that falls well-short of being a transformational reimagining of capitalism.
“If we are thinking more broadly about building more progressive power among voters, we should pocket the wins and use the debate to sketch out the full mosaic of a just economy, why rebuilding the country is not just about bricks and mortar but includes winning real wages for people by reinvigorating the labor movement via the PRO Act, ending the insanity of a wasteful health care system and of course, saving the planet,” said Jonathan Tasini, a progressive strategist.
Meaning: similar to the American Rescue Plan, which wasn’t everything progressives wanted (e.g., no $15-an-hour minimum wage hike), the infrastructure plan has a lot to offer AND the opportunity to keep expanding the conversation to VOTERS. I guess my view is the Bernie Sanders view of things: never give up your principles and keep pushing the envelope BUT notch victories that mean something to people in their every day lives.
Can it get any lower than this? Thousands of garment workers in poor countries who make slave wages turning out clothing for leading brands got fired because of the shutdowns of the economy due to the pandemic—and these rich companies have stiffed workers of their severance pay, effectively guaranteeing widespread hunger and poverty for those workers and their families.
The upshot from the Workers Rights Consortium:
…many workers are being denied some or all of this [severance] essential compensation, in violation of the law and the labor rights obligations of the brands and retailers whose clothes they sewed…In total, the wage theft at these 31 facilities robbed 37,637 workers of $39.8 million. This is an average of more than a thousand dollars (US) per person, which is about five months’ wages for the typical garment worker. Among the brands implicated in these cases are adidas, Amazon, H&M, Inditex, Next, Nike, Target, and Walmart—all companies that have made substantial profits during the pandemic… The WRC has also identified an additional 210 export apparel factories, in 18 countries, where initial evidence indicates that workers have been deprived of legally mandated severance but where there is, as of yet, insufficient documentation to confirm the violation definitively. Most of these factories supplied well-known fashion brands and retailers. Based on the percentage of valid cases of New research by the Worker Rights Consortium (WRC) reveals that many workers are being denied some or all of this essential compensation, in violation of the law and the labor rights obligations of the brands and retailers whose clothes they sewed. The WRC has identified 31 ex-port garment factories, wage theft among the sample of cases for which we have been able to reach definitive findings, we project that 182 of these additional cases (86.8 percent) involve bona fide violations. Adding in estimates for workers affected and money owed for these additional cases, we arrive at a total estimate of 213 cases of severance theft among the factories in our data set, costing more than 160,000 workers an estimated $171.5 million.”
Pigs.
Georgia: Having already promised to be handing out water to voters in line to vote in Georgia on Election Day in November 2022 and, thus, I guess inviting being arrested under the new draconian election rules, I had this to say to The Hill recently—
Jonathan Tasini, a progressive strategist and former surrogate for Sen. Bernie Sanders’s (I-Vt.) 2016 presidential campaign, said that there’s little doubt that Democrats will mobilize their voters in response to restrictive election laws.
But he also cautioned against downplaying the challenge posed by new voting restrictions.
“Look, there’s no question that potentially the barriers that Republicans are erecting will be a rallying cry for messaging on the part of the Democrats,” Tasini said. “But still, the fact that you have to mobilize people based on voter suppression tells you that voter suppression exists and that these additional barriers will make it even harder.”
“Messaging only goes so far,” he added. “Mobilizing only goes so far.”
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