American Forum Op-Ed

By Scott Klinger and Holly Sklar

Some of our nation’s biggest corporations are planning a tax holiday and they want you to pick up the tab.

Actually, you already pay for their routine tax avoidance through the use of tax havens in Bermuda, the Cayman Islands and elsewhere. These accounting acrobatics cost the U.S. Treasury $100 billion a year. Now they want Congress to pass a special tax holiday for money they “repatriate” back to the United States.

There’s nothing patriotic about this repatriation being pushed by Google, Cisco, Pfizer and other companies in the Win America campaign. To sell the tax holiday, they claim it will produce a burst of jobs and investment. In fact, Congress passed a “one-time-only” tax holiday in 2004 with similar promises. Instead, it produced a burst of shareholder dividends and stock buybacks, which goosed the pay of CEOs.

Corporations laid off workers and shifted even more income and investment to offshore tax havens in the wake of the 2004 tax holiday.

“Why should we reward firms for successfully gaming the tax system when we in turn are called on to make up the missing tax revenues?” Edward Kleinbard, former chief of staff of Congress’s Joint Committee on Taxation, told Bloomberg. “Much of these earnings overseas are reaped from an enormous shell game: Firms move their taxable income from the U.S. and other major economies – where their customers and key employees are in reality located – to tax havens.”

A favorite accounting trick is transferring a patent from the U.S. parent company to a subsidiary – often a shell company – in a tax haven. Profits from the patent go largely untaxed offshore while the costs of development, marketing and management remain in the U.S. where they are taken as tax deductions.

Pfizer was the largest beneficiary of the last tax holiday, bringing $37 billion back to the United States and paying just $1.7 billion in federal corporate income taxes. It laid off 10,000 American workers in the following months. The U.S. is the world’s most profitable drug market and yet over the last three years, Pfizer – maker of Lipitor, Viagra and much more – has reported $7.9 billion in U.S. losses while claiming $37.8 billion in profits in the rest of the world. Pfizer, like the rest of Big Pharma, is heavily subsidized by taxpayer-funded research at the National Institutes of Health and elsewhere. It should not be rewarded with another tax holiday.

Bloomberg reported that Win America member “Google reduced its income taxes by $3.1 billion over three years by shifting income to Ireland, then the Netherlands, and ultimately to Bermuda.” What a corporate ingrate. Google would not exist without the Internet, and the Internet grew out of U.S. government research beginning in the 1960s. In the 1990s, the U.S. National Science Foundation (NSF) funded the Digital Library Initiative research at Stanford University that Larry Page and Sergey Brin, now billionaires, developed into Google. Brin was also supported by an NSF Graduate Student Fellowship.
Increasingly, U.S. multinational corporations want to benefit from government spending on education, infrastructure, research, health care and so on without paying for it. Today, large corporations pay, on average, 18 percent of their profits in federal income taxes and as a group contribute just 9 percent toward federal government bills – down from 32 percent in 1952. The Congressional Joint Committee on Taxation says a new tax holiday would cost $79 billion.

A dozen national and state business organizations led by Business for Shared Prosperity recently wrote members of Congress urging them to oppose the tax holiday. The letter said, “When powerful large U.S. corporations avoid their fair share of taxes, they undermine U.S. competitiveness, contribute to the national debt and shift more of the tax burden to domestic businesses, especially small businesses that create most of the new jobs.”

There is no excuse for repeating a policy that’s a proven failure. It would be even worse this time around, as corporations would redouble their efforts to shift profits overseas in anticipation of the next tax holiday. Congress should close the tax loopholes that reward companies for transferring U.S. profits, jobs and investment abroad – not encourage them.

Real patriots pay their fair share of taxes. They don’t run out on the bill.
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Scott Klinger is Director of Tax Policy and Holly Sklar is Executive Director of Business for Shared Prosperity. Mr. Klinger is a Chartered Financial Analyst (CFA) charterholder. Readers can write to them at info [at] businessforsharedprosperity dot org.
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© Copyright American Forum. 6/11

By Brian Setzler

The coalition calls itself WIN America, but the numbers involved in the corporate tax holiday mean a real loss for America. The Congressional Joint Committee on Taxation has calculated this tax windfall would cost $80 billion, money that would be made up with higher taxes on small business people like me, or through reduced government services and infrastructure upon which all businesses, communities and families depend.

Tax amnesty programs are nothing new. The IRS has a couple of times allowed individual taxpayers to declare hidden offshore assets and pay both the full tax due and penalties in exchange for avoiding prosecution and possible jail time. While much corporate tax-dodging through the use of tax havens is neither hidden, nor illegal under current law favoring U.S. multinationals, it wholly stems from corporations who engage in these transactions for the principle purpose of shifting profits between countries in order to avoid taxes. Creating an incentive for such anti-social behavior through preferential tax rates will only serve to accelerate the offshoring of U.S. profits through fictional transactions.

Indeed, this is exactly what happened in 2004, when Congress enacted the American Jobs Creation Act, a bill which promised that a 5.25% tax rate would bring home billions of dollars that supporters claimed would be reinvested to create American jobs. The promise never materialized; most of the funds went instead to boost shareholder dividends and stock buybacks. Many of the biggest beneficiaries of the tax break, including Pfizer, Honeywell, and Hewlett Packard, laid off thousands of workers just months after receiving their tax windfall. That tax holiday, and the promise of another, has dramatically accelerated the amount of U.S. profits shifted offshore.

All of my education took place in the United States, as do all of my client meetings. The vast majority of Americans find it right and logical that I have a duty to pay taxes in the U.S. It is time that the same logic applies to multinational corporations, and that we stop accepting fairy tales about patents and trademarks held in some far-away bank vault.
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Setzler is President and founder of TriLibrium, a public accounting and business advisory firm located in Portland, OR.
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Copyright (C) 2011 by American Forum. 6/11

TEXAS LONE STAR FORUM

By Scott Chase

As a small business owner, I am worried our Legislature is going to make unnecessary and deep cuts to public services that local businesses and all Texans need. Yes, our state has a revenue shortfall, but we also have choices about how deal with the shortfall. We can take a balanced approach that uses our Rainy Day Fund.

My fellow business owners in the Oak Cliff Chamber of Commerce are concerned about unnecessary cuts too. Our chamber includes over 600 small business owners in the Dallas area. We were the first local chamber in Texas to call for the State Legislature to use the Rainy Day Fund to help balance the budget instead of the irresponsible “cuts-only” approach that the Legislature is considering.

The cuts-only approach of the Legislature is wrong for many reasons. All businesses, but particularly small businesses, such as the members of the Oak Cliff Chamber, know that spending on education, health care, roads and bridges, job training and the environment is an investment in the economic future of Texas. This investment will result in a more educated, healthier workforce and a modernized infrastructure. The large cuts in these areas being presented by reckless legislators will lead to a less competitive business climate in Texas, lower wage jobs and economic stagnation.

The cuts will affect our economy, not just in the future, but also right away. According to official legislative estimates, the cuts-only approach will also lead to over 300,000 fewer jobs, pushing unemployment up over 10 percent in Texas by 2013. Deep cuts to health care at the state level will mean increased costs of indigent health care for local taxpayers and higher health insurance rates -- both costing businesses.

But beyond the impact on our economy, the cuts-only strategy will have a detrimental impact on our society. Cuts in health care mean less healthy children; cuts in education mean fewer college graduates; cuts in transportation infrastructure mean longer commutes for workers and increased costs to move goods for businesses; and cuts in environmental monitoring mean dirtier air and water. That should not be the future of Texas either.

In the past, when Texas faced budget deficits, our state recognized that a balanced approach was necessary to keep the state moving forward. The Governor, Lt. Governor, Speaker, and Legislators all worked together to find a solution that was in the best interest of all Texans. But, in the current Legislature, our future economic development and the health of all Texans is threatened by the imprudent cuts that do not have to be made.

Using our $9.4 billion Rainy Day Fund is one way to minimize damaging cuts. Texans created the fund by constitutional amendment for the very situation our state is in now -- a revenue shortfall created by an economic downturn. In the first 18 of its 22 years, the fund never had a balance of more than $1 billion. In fact, the Legislature has spent the entire fund several times, including two times approved by Governor Perry. This is safe to do because the fund automatically replenishes from oil and gas severance taxes. Prices for oil and gas are likely to stay strong, rebuilding the fund quickly. Keeping billions in the Rainy Day Fund when we need to protect Texas from the damage of this recession is foolish.

The Oak Cliff Chamber of Commerce has gone on record asking our state Legislature to use the Rainy Day Fund as part of the balanced approach to solving our revenue crisis. Has your chamber of commerce gone on record in support of a balanced approach?

Chase owns his own solo law practice in Dallas and has represented small business owners, as well as public companies, in Texas for over 30 years. He is chair of the Legislative Affairs Committee of the Oak Cliff Chamber of Commerce and has served on the Legislative Affairs Committee of Texans for State Parks.

Copyright (C) 2011 by the Texas Lone Star Forum. 4/11

GEORGIA FORUM

By Charles H. Kuck

From the perspective of a lifelong Republican, I am always troubled when the State Legislature starts looking at ways to “fix” a problem by getting the government more involved in the lives of its citizens, rather than less involved. That is absolutely the case with the currently pending legislation on immigration. A detailed review of HB 87 and SB 40 reveals that these bills do not reform illegal immigration nor do they enforce laws related to illegal immigration. What they do is increase taxes on every citizen of Georgia by increasing government regulation, create unfunded mandates for every county, city, town, and village in Georgia, and create new private rights of action against every Georgia polity that will result in hundreds of lawsuits that will drain taxpayer coffers and result in little, if any real change on the issue of illegal immigration.

This type of legislation is popular because it gives the perception that the state is doing something, which the federal government is purportedly not doing—enforcing federal laws on illegal immigration. The problem with this notion is two-fold. First, the federal government is doing more than it has EVER done in enforcing the laws on undocumented immigration. The Obama Administration is spending literally billions of taxpayer dollars building fences, hiring border patrol agents, detaining undocumented immigrants and actually deported 400,000 people last year—a record. Second, these proposals do not create any greater degree of enforcement than already exists under current state and federal law.

By September 30, 2013, everyone arrested in Georgia is going to be run through the Secure Communities program, and if they are unlawfully present in the United States they are being held for ICE (Immigration and Customs Enforcement) to pick up within 48 hours.

Without discussing the deleterious details of this program (DWH—Driving While Hispanic), it has resulted in a record number of cases filling our Immigration Court dockets.

So, if these bills do NOT reform immigration, do NOT effectively increase enforcement, and do NOT make Georgia safer, what will they do? They will increase taxes on Georgians, force cities and municipalities to hire previously unnecessary personnel, and make litigation lawyers smile.

These proposals have as their main thrust a desire to make Georgia like Arizona. The bill is designed to make it so hard to live as an undocumented immigrant in Georgia, that such immigrants will leave the state. If this bill accomplishes its purpose it could result in the departure of more than to one million people from the state, along with their tax dollars, investments, talent, and businesses.

There are also at least two provisions which will never be enforced, and which will be struck down as unconstitutional or preempted before they even go into effect, for the same reasons that similar provisions in the Arizona bill were struck down. Provisions dealing with unconstitutional police stops and non-definitions of reasonable cause beg for a judge to overturn this law. The authorizing of private lawsuits against government agencies looks like a lawyer’s full employment act, and business destroying mandates and penalties best dealt with under federal law will simply shut down businesses and cause greater unemployment.

These proposals are bad public policy and bad for Georgia. If our legislators really want to fix the immigration problem they should all take a day and go to Washington, D.C. and demand that Congress fix our immigration system, rather than trying to put a band-aid on a gaping shotgun wound.
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Charles H. Kuck is an adjunct professor of Law at the University of Georgia, and a past national president of the American Immigration Lawyers Association.
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Copyright (C) 2011 by Georgia Forum. 2/11

AMERICAN FORUM

By Brian Setzler

As a Certified Public Accountant and business owner, I know the impact of taxes up close and personal. And the claim that ending Bush-era tax cuts on income over a quarter of a million dollars will hurt the economy, reduce employment and burden small businesses is patently false. Let’s take a look at the evidence.

First off, small business owners rarely have taxable income in excess of $250,000 (gross income would be substantially more as taxable income includes reductions for business expenses, personal deductions and family exemptions). Hiring people and investing in your business actually reduces taxable income, so hiring and investing decisions would be unaffected. At issue is the tax on income, or the money the owner has available to take out of the business.

According to the Congressional Joint Committee on Taxation, less than 3 percent of tax filers with any business income make over $250,000 (couples) or $200,000 (individuals) a year, the thresholds above which the Bush tax cuts would expire, and many of those are not small business owners. As Ed Kleinbard, former staff director of the Joint Committee on Taxation, said, “Every student who is a part-time Web designer, partner in a law firm with a billion dollars of revenue and investor in a hedge fund gets lumped together in the data, along with real small businesses.”

Even if someone does have over $250,000 of taxable income, the additional tax rate is a marginal tax rate, which means they only pay the higher rates on the portion of income over $250,000, not under it. When the rate goes from 35 to 39.6 percent (back to the level under Clinton) in the very top bracket, for example, it doesn’t mean they pay 39.6 percent of their total income in taxes any more than they paid 35 percent of their total income before. They still start at a 10 percent rate for their first portion of income and work their way up incrementally through the tax brackets. They still pay the same rates everyone else does up to that level of income.

Those fortunate enough to make these high incomes will still benefit from the tax cuts on their first $250,000 of income, just like other Americans. The amount at issue is 3.9 percent or $39 for every $1,000 of income above $250,000. You can check out your own tax situation with the calculator at the non-partisan http://calculator.taxpolicycenter.org/ to see how you might be affected.

When someone claims a small businessperson will pay additional taxes of $20,000, that small businessperson must have taxable income in excess of $700,000. If they claim they’ll pay $120,000 more, they have an eye-popping “small business” income of $3 million. Sounds more like a hedge fund manager to me.

Small businesses are crucial job creators, but if lower tax rates produced job growth, we should have seen a boom in new jobs following the tax cuts. Instead, even the Wall Street Journal, not a bastion of liberal economic policy, said President Bush “shows the worst track record for job creation since the government began keeping records in 1939.” In fact, it’s much worse than under President Clinton who increased taxes. As a new report by Business for Shared Prosperity explains, “The Bush administration created just 1.1 million jobs net while the Clinton administration created 22.7 million.”

The choice is stark. Do we borrow $700 billion from China as we did this past decade to pay for tax cuts for hedge fund managers and Wall Street barons -- irresponsibly burdening our children with repaying, a debt with interest we don’t need to incur?

Do we make deep cuts in social services, education and public safety and forgo investing in the 21st Century infrastructure we desperately need to be competitive?

Or do we do the right thing and ask fellow citizens with really high incomes to pay their fair share? These are real choices our Congressional representatives will make in coming days.

Let’s tell Congress that investing in the infrastructure our businesses and well being depend on, educating our children, caring for the sick and the elderly, and investing in the future are what made America great in the first place.
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Setzler is a certified public accountant since 1989 and president and founder of TriLibrium, an accounting and business advisory firm located in Portland, OR.
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Copyright (C) 2010 by the American Forum. 11/10

AMERICAN FORUM

By Frank Knapp

Whether Americans voted for Republicans or Democrats in the mid-term election, one thing is clear: Voters were demanding that Congress focus intensively on job creation on Main Street -- not lobbyists and campaign donors from big business and Wall Street.

Apparently, many in Congress and President Obama, if recent reports are true, either didn't get the message or simply don't care now that the voting is over.

The top legislative priority of the newly "Tea Party-empowered" during the lame duck session is hardly what Tea Party insurgents had in mind. The proposal is to (1) increase the national debt by borrowing $700 billion to $1 trillion over the next 10 years; (2) spend the money on big, non-job producing tax cuts for the wealthiest 2 percent of Americans; (3) use small business as the excuse.

This bad-business proposal is now being pushed in Congress and the media by those advocating extending the Bush-era tax cuts to the top two income brackets. While proponents acknowledge that less than 3 percent of the taxpayers who would receive the tax cuts actually have some business income, they insist that these approximately 900,000 taxpayers are the very successful small business owners who will stop hiring and purchasing if they don't get their tax cut. Wrong, wrong, wrong.

First, almost all real small business owners are middle-class Americans with middle-class incomes. Walk down any Main Street and you won't find small business owners netting over $250,000 a year in profit (dollars remaining after the cost of employee wages and other business expenses are deducted from taxable income).

These middle-income, Main Street small businesses are the ones we really need to help create the new jobs to lift us out of this down economy. There is absolutely no evidence that the wealthiest small business owners create more jobs than those in any other tax brackets. As any small business owner knows, the number of employees does not correlate with profit.

So who are these mysterious high-income "small business" taxpayers in the top two brackets who Congress is considering borrowing hundreds of billions from foreign countries in order to give a tax cut?

Very few of them are what most would consider small business owners. They include partners in large corporate law firms, hedge fund managers, K Street lobbyists, high-powered consultants, Wall Street bond traders and the country's wealthiest
millionaires -- all of whom claim some business income and thus are counted in IRS eyes as small businesses. These aren't "mom and pop" businesses, says Adam Looney, senior fellow at the Brookings Institution.

Not only are the vast majority of these 900,000 "faux" small business taxpayers not involved in job hiring decisions, the tax cut won't even cause them to significantly increase their personal spending to create the demand for new jobs.

The non-partisan Congressional Budget Office (CBO) evaluated 11 policy options in terms of boosting economic growth and creating jobs. It found that "policies that would temporarily increase the after-tax income of people with relatively high income...would have smaller effects because such tax cuts would probably not affect the recipients' spending significantly."

The wealthiest Americans are more likely to save their money from a tax cut rather than spend it, according to Moody's Analytics, Inc.

If we really want to give a tax cut that will create jobs, then we could cut employer payroll taxes on businesses that actually increase their workforce. The CBO estimates this would have six to eight times as much job-creating impact as an income tax cut. The policy the CBO found with the biggest bang for the buck is extending unemployment insurance. It would boost demand by providing income to people most needing to spend it in the local economy.

Alternatively we could create more customers for our small businesses through infrastructure projects, many of them long overdue upkeep or modernization, or keeping teachers and law enforcement officers working rather than laid off. The policy the CBO found with the biggest bang for the buck is extending unemployment insurance -- a direct infusion of money into local economies by people buying for their basic needs.

Increasing the nation's deficit while not saving or creating jobs is just more politics as usual in Washington where those with the most money get rewarded with even more money.

Congress needs to hear this loud and clear. These high-end tax cuts serve K Street lobbyists not Main Street shop owners. Politicians should not use us to justify a very bad business decision.

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Knapp is President and CEO of the South Carolina Small Business Chamber of Commerce.
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Copyright (C) 2010 by American Forum. 11/2010

AMERICAN FORUM

By Peter Heegaard

Congress should do the responsible thing and let tax cuts for high earners expire at the end of this year.

As someone who has benefited from these tax cuts, I believe we must restore balance to a federal tax system that has been tilted in favor of the wealthiest 5 percent for a generation.

I’ve had a lifelong interest in the vital role of social entrepreneurs, the local heroes who take risks to lead innovative nonprofit organizations to solve problems at the local level.

I’m a big believer in the importance of mentorship, of helping the next generation of business and community leaders find their way.

But I also view efficient government and adequate tax revenue as essential ingredients in a fostering the fertile soil for business development and healthy communities. Just as a healthy farm or garden needs a balance of nutrients, our country needs a balanced and fair tax system.

Yet the overheated anti-tax rhetoric is alarming. There are loud voices that will object to any tax and claim that raising taxes on higher income people will destroy economic growth and punish success. They argue that we don’t need additional revenue, that we can simply reform entitlements, cut spending and root out waste.

We should obviously press for greater government efficiency and accountability. But it is irresponsible to suggest that we can proceed without increasing tax revenue. No gardener or farmer would expect their crops to grow year after year without regular additions of fertilizer.

We have racked up over $13 trillion in national debt, thanks to borrowing to pay for two wars and a decade of tax cuts. Yet, we have long overdue investments in education, reducing our dependence on foreign oil, and public infrastructure, such as roads, bridges, broadband access, and market protections. Where will the money come from?

Generous tax cuts for the wealthy, passed by Congress in 2001 and 2003, are due to expire at the end of this year. Between 2002 and 2009, households with incomes of over $250,000 received more than $700 billion in tax cuts, according to the Center on Budget and Policy Priorities. This was essentially added to our national debt.

The higher income people I know didn’t lobby for these original tax breaks and recognize the need to allow them to expire. If we retain these tax cuts, we’ll add another $700 billion to the debt over the next decade. These are funds better spent in deficit reduction and targeted investments.

The retired business leaders I serve with on community boards are thankful for the opportunities we’ve had to do business and grow wealth in this remarkable nation and free market economic system. None of us exist on an island and no wealth can be created without a society that provides a fertile ground of opportunity for everyone.

In the 30 years after World War II, 1947 to 1977, we taxed ourselves at significantly more progressive tax rates than today. The highest earners paid twice as much of their income in taxes in 1960 as they do today, according to a new study by Wealth for the Common Good. With that money we made investments in public infrastructure, affordable homeownership and expanded education at all levels. These far-sighted leaders supported policies that propelled millions of Americans into the stable middle class.

Today, young people are graduating from college with $100,000 in school debt, as undergraduates. We’re coasting along on previous generations’ investments in water treatment facilities, bridges and other essential infrastructure -- and we’re leaving too many talented young people behind. Our failure to make investments today will undercut prosperity for the next generation.

Congress will be under tremendous pressure to continue providing tax breaks to high income groups. Let’s hope they have the fortitude to let mine expire. The fertility of our economic soil depends on it.
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Heegaard is retired from banking and a former Managing Principal of Lowry Hill, a subsidiary of Wells Fargo. He is founder of Urban Adventure and author of “Heroes Among Us: Social Entrepreneurs Strengthening Families and Building Community” (Nodin Press).
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Copyright (C) 2010 by the American Forum. 10/10