Here’s a quick read for you, courtesy of Yahoo Finance — it’s a pretty interesting take on how our tax code favors those with the resources to milk it. The article interviews Pulitzer Prize-winner David Cay Johnston, who explains more about this practice in his book, “The Fine Print: How Big Companies Use ‘Plain English’ to Rob You Blind.”
Johnston explains that although the US nominally has a prohibitively high corporate marginal tax rate (39.2%), very few corporations actually pay taxes at that rate, and the greater the resources of the company, it seems, the more tools they have at their disposal to reduce their burden even further. Our tax laws allow all sorts of creative accounting practices, and if companies can afford to throw accountants and lawyers around, set up offshore companies, etc., they can make billions in tax burdens evaporate — all legally.
Along with actual tax law, Johnston says, are all the one-off deals that corporations cut with States and municipalities to shirk their local tax burdens. We hear about this all the time — big companies moving from one State to another — or even just threatening to move — in order to extract a deal from a State and/or city. “Cut us a deal, or we’re leaving and taking all these jobs with us.”
So, what’s wrong with this picture? Let me (try to) count the ways:
- Big companies can throw their weight around in Washington. If there’s a loophole they like, you can bet that some Congre$$men know about it.
- Big companies can throw their weight around locally. If Sam’s Bagels threatens to move its store and 3 employees to another town, I really doubt that this will hit the City Council’s agenda, but if Big Auto, Inc., threatens to move 1,000 jobs, you can bet they’re going to get a sweetheart deal.
- All the grousing we hear about the 39% corporate tax rate is really a load of you-know-what — at least if your company’s got a decent team of accountants and lawyers.
- These tax practices are incenting companies to get good at accounting tricks — not to get good at building product or servicing customers. Maybe it’s just me, but I’d like to see us build companies that are good at contributing to our economy and society, rather than being good at evasion and obfuscation.
Now, before you accuse me of blindly raining on big companies — let me assure you I’ve got nothing against big companies (or individuals who work tax loopholes) per-se. I do, however, have a problem with big companies that wind up with an unfair advantage just because they’re big.