Let’s Just Give Up on Taxing Big Corporations

Citizens for Tax Justice, a Washington-based advocacy group for tax fairnesss, call for an end to U.S. companies’ ability to accumulate untaxed earnings overseas, an end to corporate inversions, an end to shifting intellectual property to tax havens. President Barack Obama has called for a repatriation of the offshore profits, to be taxed at 14 percent rather than the full 35 percent corporate tax rate. None of this is likely to happen, at least while Republicans dominate Congress. Whatever they may say about it, they appear to be generally persuaded by arguments like those listed above. The lobbying dollars are apparently well-spent.

The European Union’s fight against tax evasion in the form of sweetheart deals multinational companies have received from Ireland, the Netherlands and Luxembourg will probably force some of these companies to rejigger their tax structures, but European countries will not stop offering “innovation boxes,” which allow companies to reduce tax on profits from new technology, and other enticements to keep multinationals operating there. It’s better to charge them very little tax than to lose them.

In short, there’s a lot of murmuring and indignation, but there are few results. The cash is still there, providing liquidity to financial markets as it’s invested from the offshore accounts. 

So why shouldn’t the U.S. simply declare corporations greater than a certain size — say, members of the Fortune 500 — exempt from corporate tax? Sure, the U.S. government would lose some cash, and it would be a disaster for Bermuda and the Cayman Islands, where Fortune 500 companies supposedly earn high multiples of the local gross domestic product. Yet the absurdity and embarrassment of companies setting up obvious tax avoidance structures would be eliminated. Companies would strive harder to get into the Fortune 500 club; there would be an enormous incentive for businesses to innovate and grow. 

Is it fair to reward companies that have already reached the pinnacle at the expense of those still struggling? Does it make sense to stop taxing a firm just because it has merged its way to the top? Doesn’t the admission that big corporations are more equal than others just because of their size sound wrong? Aren’t there better ways to use trillions of dollars than to have them invested in the financial markets on behalf of a few dozen firms’ shareholders?

I bet you’re wondering all of the above. And yet that’s how the current system works, more or less, with a little cunning, a bit of deception and a lot of big-corporation arrogance. It only works because most people are somehow happy to pay more taxes than Apple or Coca-Cola does. There is simply not enough public outrage to produce serious pressure. It appears, then, that we’re happy with a big corporation tax exemption.