Too many loopholes
As anger mounted this week over the IRS' targeting of some conservative political organizations, a problem on the other end of the spectrum - tax avoidance by corporations - generated far less outrage.
The Senate Permanent Committee on Investigations this week revealed that Apple Inc., through the use of offshore subsidiaries, has paid as little as a twentieth of a percent in taxes on hundreds of billions of dollars in income. Sen. Carl Levin of Michigan, the committee chairman, said at a hearing Tuesday that 30 of the largest American multinational corporations, with profits of more than $160 billion in profits, had paid nothing in federal income taxes over a recent three-year period.
According to the Congressional Joint Committee on Taxation, taxing the foreign profits of U.S. corporations at U.S. rates would generate about $42 billion a year, roughly half of the amount of the automatic spending cuts under sequestration.
Many of the companies funnel global revenue through subsidiaries set up in foreign countries. Apple, for example, has its headquarters in Cupertino, Calif., but has a small Irish subsidiary, with only 4 percent of its work force, that accounts for 65 percent of its global income.
The device is an international version of the "Delaware loophole," by which many corporations avoid paying Pennsylvania taxes by funneling their revenue through a related corporate entity in Delaware.
The Apple and related cases should spur momentum to close the loopholes, more fairly spread the tax burden and increase the competitiveness of U.S. companies by enabling a reduction in the corporate income tax rate.