The Post examined data from research firm Capital IQ and from public filings to the SEC.
But can Congress agree on how to spend the savings?
An expected rewrite of the tax code has Washington’s influence industry ready to protect client interests.
Robert Willens, who has been a corporate tax expert for more than 40 years, said he has noticed an unprecedented level of enthusiasm for reducing taxes. “Maybe it’s just the pressure to produce profits,” Willens said. “I think people realize now that it’s not difficult to avoid U.S. taxes . . . and investors are demanding consistently improving performance.”
According to a Congressional Research Service report from January, U.S. multinationals in 2008 reported 43 percent of their overseas profits in Bermuda, Ireland, Luxembourg, the Netherlands and Switzerland, all places famous for having among the lowest tax rates in the world.
The same report noted that profits reported in Bermuda rose from 260 percent of the country’s economic output in 1999 to more than 1,000 percent in 2008.
Complaints voiced, heard
None of this has stopped companies from coming to Washington and making their case that they are paying way too much in taxes. And they are getting a full hearing as some top lawmakers move to overhaul the corporate tax code.
The current system represents the worst of two worlds: It charges a relatively high rate, yet many companies don’t actually pay it.
One of the strangest things about the corporate tax debate is that it is nearly impossible to figure out the amount companies are actually paying. Nowhere is there a straightforward number showing how much in federal taxes a firm pays to the U.S. Treasury every year.
Instead, firms list a “current tax provision” number that is an accountant’s estimate used to calculate earnings but that is not meant to equal the size of the company’s U.S. federal tax bill. The Post relied on these “current tax” figures for this article.
After doing its analysis, The Post contacted every company in the Dow 30 and asked to see the actual figures paid to the federal government every year. No company provided the information.
Over the long run, tax experts say, the publicly available numbers, however flawed, offer the closest look an outsider can get at what a company pays. And while many companies hold their money overseas, a number of executives have said that they would be willing to bring some of that money back to this country if the U.S. tax rate were not so high.
“The U.S. system for taxing its corporate citizens on their global income . . . is an outdated remnant that inhibits our ability to compete globally,” said Gregory J. Hayes, chief financial officer of United Technologies, in testimony before the House Ways and Means Committee in May 2011. “It was designed when the U.S. was the dominant economy and before globalization became an unmistakable market reality.”
Some momentum is building for changes to the code, driven mainly by Rep. Dave Camp (R-Mich.), chairman of Ways and Means. Camp has said he is interested in lowering the top corporate rate to 25 percent. He also favors exempting 95 percent of overseas earnings from U.S. taxation when that income is brought back here.
These signals have sent U.S. firms scrambling to lobby for tax law changes that would benefit their industries. But what helps one company can very well hurt another. As a recent report from the law firm K&L Gates warned business clients, “If You’re Not At the Table, You’re On the Menu.”
It is not just the United States trying to figure out how to tax multinationals. Worldwide there is an increasing tension between businesses that have gone more global and national governments that still have to find a way to raise revenue to pay for domestic services.
The problem has gotten worse as countries adopt tax policies designed to attract more jobs and investment, only to wake up and discover that the firms doing business in their borders have found ways to pay near-zero tax bills.
“From a company’s perspective, they’re just minimizing their global taxes,” said Shackelford, the North Carolina professor. “They don’t care if that tax dollar goes through Berlin or London or the U.S. or wherever.”
A recent report by the Organization for Economic Cooperation and Development sounded an alarm, noting that multinationals are using “more aggressive” tactics to reduce their taxes. “What is at stake is the integrity of the corporate income tax,” the report said.
In Britain, recently, the coffee giant Starbucks faced massive protests and parliamentary hearings when reports showed that the company had paid almost no taxes in the past three years, despite revenue of more than $600 million in 2011. Starbucks had not broken any law but eventually agreed to pay $30 million to make peace.
Countries “want the jobs, they want the investment, so they put in incentives to do that,” Shackelford said. “Companies take advantage, and then [politicians] get mad that they don’t pay the taxes. It’s a little hard to have it both ways.”