Elizabeth Warren: "No Loopholes Or Exemptions"

Elizabeth Warren is like a great idea machine. And its not just because of the presidential campaign. She's always been like a great idea machine. That said, what a wonderful president or vice president she'd be! The new idea, which she fully explains at Medium-- is basically like an alternative minimum tax for corporations that make loads of money but have attorneys who have successfully figured out how to shield those profits from taxation. In her own words: "It’s almost Tax Day, and chances are you’ll be paying federal taxes this year. Maybe it’s a lot, maybe it’s a little. But you’ll be kicking in something for our military, for medical research, for highways and bridges --  the kinds of investments our federal government makes to defend our country and strengthen our economy. Well, guess what? You will be paying more for running the federal government than a bunch of big American corporations that made billions of dollars in profits in the last year."

She points out that Amazon reported over $10 billion in profits and paid zero federal corporate income taxes and that Occidental Petroleum reported $4.1 billion in profits and paid the same amount-- zero. And they aren't the only ones. In fact Kathryn Kranhold, reporting for the Center for Public Integrity and NBC News yesterday, wrote in a piece entitled Twice as many companies paying zero taxes under Trump tax plan that "at least 60 companies reported that their 2018 federal tax rates amounted to effectively zero, or even less than zero, on income earned on U.S. operations"... more than twice as many as the year before. Besides Amazon and Occidental, other big recognizable names include Netflix, Chevron, Eli Lilly and Deere.

The Institute on Taxation and Economic Policy (ITEP) reported that corporations were "able to zero out their federal income taxes on $79 billion in U.S. pretax income. Instead of paying $16.4 billion in taxes, as the new 21 percent corporate tax rate requires, these companies enjoyed a net corporate tax rebate of $4.3 billion, blowing a $20.7 billion hole in the federal budget last year." Thank the 2017 Republican tax act which "lowers the bar for the amount of tax avoidance it takes to get you down to zero."

Trump's tax cut bill slashed the corporate tax rate and eliminated and tightened certain deductions, while providing other new tax breaks to companies. The cut in the corporate tax rate alone will save corporations $1.35 trillion over the next 10 years, according to the Joint Committee on Taxation, which reports to the Senate and House finance and budget committees.

The United States theoretically had one of the highest corporate tax rates in the world, though many firms had an effective rate much lower. Previous administrations, including President Barack Obama's, had sought to modestly cut the corporate tax rate to make it more competitive. After taking office in January 2017, Trump and the Republican-controlled Congress quickly enacted one of the most sweeping tax bills in decades-- an overhaul that is estimated to raise the federal deficit to $900 billion this year, and more than $1 trillion, starting in 2022, according to the Congressional Budget Office, a nonpartisan legislative agency.

...Studies show that many corporations rarely paid the 35 percent rate under the old tax code. Over the years, companies found many ways to cut their tax bills, from sheltering foreign earnings in low-tax countries and banking credits for money spent on research and development to deducting the expense of stock options for executives.

...[T]he new tax law has left most of the old tax breaks intact while cutting the rate by almost half, resulting in a "continued decline in our already low corporate revenues." Revenues from the corporate tax fell by 31 percent in 2018 to $204 billion from $297 billion. "This was a more precipitous decline than in any year of normal economic growth in U.S. history."

Warren's proposal to fight this is based on recognizing how companies report profits. "Companies follow established financial accounting rules to calculate the value of the profits they report to shareholders and the public. But they follow a different set of tax accounting rules to calculate the 'profits' they report to the IRS and pay corporate income taxes on. Because of relentless lobbying, our corporate income tax rules are filled with so many loopholes and exemptions and deductions that even companies that tell shareholders they have made more than a billion dollars in profits can end up paying no corporate income taxes. This is not sustainable. From 1988 to 2012, the effective tax rate for American corporations--  the rate they actually pay relative to their profits--  went down significantly. In a recent eight-year period, 25 big companies alone claimed $286 billion in tax breaks. And that was before the Republican tax bill slashed the corporate tax rate and handed hundreds of billions of dollars more to corporations. That’s why I’m proposing a big new idea: the Real Corporate Profits Tax. This new tax applies to the profits very large American companies report to their investors--  with no loopholes or exemptions. It will make our biggest and most profitable corporations pay more and ensure that none of them can ever make billions and pay zero taxes again."

This new tax only applies to companies that report more than $100 million in profits--  about the 1200 most profitable firms in the country last year. That first $100 million is left alone, but for every dollar of profit above $100 million, the corporation will pay a 7% tax. Any company profitable enough to hit the Real Corporate Profits Tax will pay that tax in addition to whatever its liability might be under our current corporate tax rules.

That means Amazon would pay $698 million in taxes instead of paying zero. And Occidental Petroleum would pay $280 million in taxes instead of paying zero.

It’s a small new tax-- but because our richest, biggest corporations are so skilled at minimizing their taxes under our current system, that small new tax will generate big new revenue. According to an estimate from economists Emmanuel Saez and Gabriel Zucman at the University of California-Berkeley, the tax will bring in $1 trillion in revenue over the next ten years -- just from the massive profits of the thousand or so richest companies in the country.

...The Real Corporate Profits Tax takes advantage of market incentives to ensure that profitable companies continue to pay their fair share. Corporations will always want to report as low of a profit figure as possible to the IRS. But they want to report as high of a profit figure as possible to investors to drive up the company’s stock price, which in turn drives up bonuses and other compensation for executives. Companies will be hesitant to under-report their profits to investors --  which means they won’t be able to game the tax system as much as they can now.

The Real Corporate Profits Tax also helps level the playing field for small businesses trying to compete with the giants. Studies show that the very largest companies pay a lower effective corporate tax rate than smaller companies. That’s because the largest companies have more money to lobby for special tax loopholes and to hire hordes of lawyers and accountants to exploit every single loophole we already have. Big companies can also shift profits to offshore tax havens in a way small businesses can’t. By applying the Real Corporate Profits Tax only to the largest companies--  and taxing their foreign profits just like their US profits--  this new tax will help neutralize these financial advantages and give smaller businesses a fighting chance.