Elizabeth Warren: What Apple Teaches Us About Taxes
WASHINGTON — APPLE got a big surprise last week when the European Commission
ordered Ireland to collect more than $14 billion in back taxes from the
company. The global giant had been attributing billions of dollars in
profits to a phantom head office, allowing it to pay a tax rate of 1
percent or lower.
Both
Apple and Ireland are appealing the decision, but the commission’s
announcement was the latest sign that multinational corporations are
running out of places to hide from paying taxes. The door is now open
for Congress to fix our own corporate tax code, which has allowed the
biggest multinationals to shirk their obligations for decades.
The
Apple ruling is big, but it is only the latest international effort to
end the deals that American multinationals have used to pay near-zero
tax rates. The European Commission is investigating Luxembourg’s tax
arrangements for Amazon and McDonald’s, and last year the European Court
of Justice struck down tax advantages to companies and their
subsidiaries selling e-books throughout Europe. Also last year, Britain
enacted a new tax to target profits siphoned off by international
companies — nicknamed, without much subtlety, the “Google tax.”
It’s not just Europe. The Organization for Economic Cooperation and Development
and the Group of 20 nations are coordinating on a global effort to end
the cross-border games that allow companies to avoid taxation by moving
money among various subsidiaries. Multinational corporations are
especially worried about losing access to Cayman Island-style tax rates
in European countries where they can also get rule of law, political
stability and an educated professional class of attorneys and
consultants.
The
Treasury Department has pushed back against the European Commission
over the Apple case, concerned about the impact on the Internal Revenue
Service’s authority. But Treasury has also finalized new
country-by-country reporting requirements that could help expose the
jaw-dropping variety of tax-dodging schemes multinational companies
employ. At the Group of 20 summit meeting in China last weekend,
President Obama reiterated his support for a cooperative global effort
to end the international tax shell game.
Now
that they are feeling the sting from foreign tax crackdowns, giant
corporations and their Washington lobbyists are pressing Congress to cut
them a new sweetheart deal here at home. But instead of bailing out the
tax dodgers under the guise of tax reform, Congress should seize this
moment to take three crucial steps to repair our broken corporate tax
code.
First,
Congress should increase the share of government revenue generated from
taxes on big corporations — permanently. In the 1950s, corporations
contributed about $3 out of every $10 in federal revenue. Today they
contribute $1 out of every $10, despite their reliance on federal
investments to start and expand their businesses. The National Science
Foundation helped fund some of the initial work of Google’s founders.
Apple’s consumer products still rely on technology that originated in
federally funded research. To usher in the next generation of prosperous
American companies — and to make the investments we need to sustain
broad-based economic growth — the current generation of corporate
winners must step up and pay its fair share.
Second,
Congress should encourage investment in jobs here in the United States.
Giant corporations are pushing corporate tax reform proposals that
offer a lower permanent tax rate for earnings generated abroad than
earnings generated at home. That is nuts. Preferential tax treatment,
either through special rates or deferred due dates, creates a huge
financial incentive for American companies to build businesses and
create jobs abroad rather than in the United States. Our tax code should
favor jobs and businesses at home — period.
Third,
Congress should level the playing field for small businesses. Small
companies in Massachusetts don’t stash profits in the Netherlands. They
can’t hire a team of accountants to set up a “reverse hybrid mismatch”
to slash their taxes. This puts small businesses at a competitive
disadvantage as they end up shouldering more of the burden of paying for
education, infrastructure, research, the military and everything else
our nation relies on to succeed.
I
have been pushing Congress to take these steps since I arrived in the
Senate in 2013. The common refrain from Republicans who oppose these
measures is that taking them would encourage American companies to flee
abroad. But as other nations step up to prevent tax avoidance, that case
gets weaker and weaker. And we have the leverage to tighten our tax
code because these companies want what America offers: the world’s
wealthiest consumers, the world’s best work force, the world’s most
reliable legal system and the world’s deepest capital markets.
For
years, corporate tax dodgers have taken full advantage of all the
benefits of being American companies, while searching out every possible
way to avoid paying American taxes. Now that other leading countries
are starting to get tough on tax enforcement, these tax dodgers suddenly
want to move their money back to the United States. When they do, they
should pay their fair share, just as working families and small
businesses have been all along.
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