American corporations are increasingly moving money overseas into tax shelters in order to avoid paying U.S. taxes, a practice that is legal but many view as a loophole reserved for the super rich. According to Bloomberg Businessweek, this practice, known as “inversion,” costs the nation 150 Billion dollars a year in federal revenue and 34 Billion dollars in state revenue. Bloomberg estimates this is roughly 5 percent of total U.S. tax revenue, a completely non-trivial amount.
“I don’t care if it’s legal – it’s wrong.”
In response, President Obama is loudly calling for what he’s termed “economic patriotism.”
“My attitude is I don’t care if it’s legal – it’s wrong,” the president said in a speech in Los Angeles.
“Economic patriotism says it’s a good thing when we close wasteful tax loopholes and invest in education, and invest in job training that helps the economy for everybody.
“Let’s stop rewarding companies that ship jobs overseas; give tax breaks to companies that are bringing jobs back to the United States,” he said.
Tax havens mean that companies making money in the U.S. and abroad are able to avoid paying taxes on their profits. In order for American citizens to make up for the lost 184 Billion in tax revenue, each taxpayer would have to pony up 1,259 dollars every year. So, it costs almost everyone money and lost opportunities. Even worse, some of your favorite (and most profitable) companies are guilty of it.
This seems pretty basic and fair to me. I’m not able to offshore my earnings and avoid taxation, why should anyone else be? And even if everyone could, what would our country’s future look like?
Congressional Democrats are reportedly floating a proposal which would make inversion much more difficult while corporations are calling for a lower corporate tax rate, an idea whose time has probably come. Here’s hoping that practicality can win the day.