Bernie Sanders wants to crack down on offshore tax dodging by eliminating tax breaks that encourage corporations to shift profits and jobs overseas. Among the measures in the bill he offered last Thursday is a proposed tax on foreign profits at the full corporate tax rate of 35%.
An estimated $2.4 trillion in foreign profits is stashed overseas, with Apple holding the largest amount at $216 billion, according to Bloomberg estimates. Microsoft also reportedly holds a substantial amount at an estimated $108.9 billion.
Sanders also wants to close other loopholes by making corporate inversions less attractive. The legislation, if passed, would prevent companies from using offshore post office boxes and other artificial solutions if their operations and management are actually based in the US.
Sanders’s bill comes as President Trump and congressional Republicans plan a revamp of the US’s tax legislation which will, among other things, substantially lower the corporate tax rate. Trump also wants to give a massive tax break to those with overseas profits by allowing multinationals to pay a 10% rate on repatriated profits, which he believes will eliminate the incentive for keeping money abroad.
“Instead of giving a $550 billion tax break to corporate tax dodgers as President Trump has proposed, our legislation will raise at least $1 trillion in new revenue over the next decade,” Sanders said in support of his alternative proposals.
Clark Gascoigne, deputy editor of the FACT Coalition, an NGO set up to fight offshore tax abuses, said the bill would end the incentive to game the tax system without creating a litany of new problems and unintended consequences.
“In contrast, the recent House tax reform blueprint attempts to end the offshore gaming of the tax code but, in practice, it merely changes the nature of the gaming by incentivising companies to shift the location of sales rather than the location of profits,” Gascoigne said. “It is a gift to creative tax planners.”
But many doubt whether Sanders’s bill will receive any serious consideration from Congress.
“Senator Sanders and his co-sponsor are not on the Senate Finance Committee, whose members introduce the vast number of tax bills that are considered by the Committee and the full Senate,” said Marc Gerson, vice chair of the tax department at Miller & Chevalier.
The 35% ‘corporate tax myth’
A recent report released by the Institute on Taxation and Economic Policy claims that many corporations pay far less tax than the statutory rate, or nothing at all, because of tax breaks, loopholes in the law and creative tax planning.
Sanders said the US has a “rigged tax code that has essentially legalised tax dodging for large corporations”, and criticised President Trump for saying that the US has one of the highest corporate tax rates in the world. At 35%, the statutory corporate rate is certainly high, but in reality most corporations pay far less than this.
Gerson said that paying less than the statutory rate is not only commonplace, but also expected, given “the availability of a variety of deductions and credits”. George Gerachis, head of tax at Vinson & Elkins, said that the reasons for corporations paying less than the statutory rate are varied and quite complex.
“Often, corporations achieve a sub-35% federal effective tax rate because they are availing themselves of a tax benefit that Congress enacted to incentivise certain behaviour. A prime example [is] the tax credit for increasing research and development activities. Our Congress historically has shown a predilection for enacting thousands of tax preferences to incentivise particular behaviours,” Gerachis said. “While we don’t have many details, both President Trump and the GOP House Ways & Means Committee want to change this dynamic by reducing corporate rates well below 35% but eliminating, or cutting back, some tax preferences.”
