As the debt ceiling debate rages on, it appears that Congress and the President are looking at a plan to simply raise the debt ceiling enough to allow the federal government not to default for a short period of time and do some budget cuts along with it. What a tremendous waste of an opportunity to address the issue of multinational corporations using tax loopholes and offshore tax havens to avoid paying their fair share of taxes.
There is an estimated $1 trillion dollars of taxes over the next decade that these multinationals should be paying but won’t if we don’t change our corporate tax laws. That equals 1/4th of the debt reduction goal President Obama said he wanted. It’s low hanging fruit that these corporate giants and their advocates like the U.S. Chamber won’t let us pick because of all the campaign contributions and lobbyists at their command.
Fortunately there are other business organizations that understand the need for a balanced approach to deficit reduction that includes both budget cuts and responsible, common sense revenue increases.
Below is a letter from the American Sustainable Business Council being delivered today to House Speaker John Boehner and Majority Leader Erick Cantor. Copies are being given to the President and other Congressional leaders.
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July 19, 2011
RE: Debt Ceiling, Taxes and Deficit Reduction Approaches
Dear Speaker Boehner and Majority Leader Cantor,
The American Sustainable Business Council is a network of business associations and companies representing over 100,000 businesses across the nation. Our members are part of a growing force within the U.S. economy that understands that financial success requires balancing economic, social and environmental needs.
We see an enormous opportunity in the public debate over the budget and debt, for fundamental reforms to grow our economy and strengthen our country. However, we do not believe the conversation is heading in the right direction. We are concerned that offshore tax havens, growing income inequality, rollback of environmental and safety regulations, and divestment from infrastructure and workforce development, present serious challenges to our global competitiveness. The continued practice of discounting externalities, subsidizing highly profitable mature industries, and rewarding off-shoring of U.S. jobs has contributed substantially to the national debt and undermined the health of the U.S. economy.
As businesspeople, we also believe that the tax code needs to be significantly modified so that small and mid-sized companies and middle class families, are not asked to pay a disproportionate amount of taxes. We are quite willing to pay our fair share, but find it troubling that many of the nation’s largest companies pay an effective marginal rate far, far less than we do.
We write to ask you to re-examine your basic assumptions of what is required to stabilize the U.S. economy and address the budget deficit. Please understand that not all business leaders agree with many of the points you make daily in the name of defending the private sector. It is inaccurate to lump together large and small business—and businesses in every sector of the U.S. economy–as if all of our interests were exactly the same. Some might see this as a strategy to use the halo of small business to camouflage the excesses of big business.
We do agree with the U.S. Chamber of Commerce and the Business Roundtable that we must raise the debt ceiling, and soon. However, we find that a diversity of business voices is not being heard on the specifics of the current budget debate. Many business leaders believe that raising revenues through tax code modifications, and supporting federal government services, is critical for economic health. Cuts to programs for the young, old, disabled and unemployed will hurt not only our customer base, limiting their capacity to buy our products, but our nation as a whole.
Further, we disagree with the perspective that any tax increase destroys jobs. We believe that there are important distinctions to be made between good taxes and bad taxes, between incentives that create jobs and real value for the economy and those that don’t. There are expenditures that are critical to improving productivity and the nation’s infrastructure and those that are a waste of money. Removal of certain subsidies for mature industries, in our view, does not constitute a tax increase but rather a smart business decision. This is how we run our companies – moving resources towards areas of greatest need in a constantly changing marketplace.
We would point out that during the 1980’s, President Reagan raised taxes many times and unemployment continued to fall. And, when President Clinton raised taxes in 1993, unemployment fell and investment expanded. We would like to see the discussion of job creation using proven methods re-elevated in the national debate, including government investment in areas of significant national interest, such as renewable energy development, manufacturing, education, high speed rail and basic R&D. The private sector and federal government must work together to ensure that America not only remains an economic powerhouse, but also a nation built on principles of fairness.
We have two other important concerns: (a) the largest companies rarely pay the statutory rate, instead often paying half that in practice while small businesses, who account for most of the net job growth, consistently pay higher tax rates; (b) job creation in America is our top priority. To that end, we need to ensure that reduced tax rates actually result in jobs being created here at home, rather than being shipped overseas.
As this crisis is turning on fixing the Federal budget, we would highlight that the tax burden is being described as if the prosperous—whether individuals or corporations—are paying taxes at the highest marginal rate. A few of the nation’s wealthiest citizens claim that they are paying 50% of their income in federal or federal and state taxes. They are not.
In fact, the effective rates of taxation—the real rates that wealthy individuals and corporations pay—are half the highest marginal rate or less. Corporate taxes as a share of federal government receipts are at their lowest level since the 1950’s. Fixing these distortions and closing huge tax loopholes and subsidies in our Federal budget to generate revenue should be at the heart of resolving the current crisis.
With this as background, we offer a set of principles and solutions that our members see as essential to getting our country back on track:
Principles
• Taxes have a critical role to play in funding research to generate innovation and growth, providing for our national defense, and creating an equitable economy.
• Raising revenue to fulfill essential obligations, such as maintaining/improving infrastructure is smart policy, as are taxes that fund workforce investments.
• The national burden for debt reduction should not fall on small companies.
• Small and mid-sized businesses use their assets to reinvest in their communities and workforce. They are the backbone of the U.S. economy, creating most of the net new jobs over the past decade.
• Regulations are needed, as the marketplace isn’t perfect. We find that carefully crafted regulations can save more money than they cost, as evidenced by the inadequacy of banking regulations that cost our nation over one trillion dollars in lost assets.
Solutions
• Reducing the budget deficit should not be achieved exclusively by reducing public expenditures, many of which improve the nation’s competitiveness. Drastically cutting expenditures will also likely increase the unemployment rate. Revenue enhancements should be a key part of proposals for deficit reduction.
• Taxes that assure a stable middle class and maintain consumer demand—key to our economic future—are welcome.
• An effective and graduated Corporate Alternative Minimum Tax could assure that companies pay their fair share of taxes. Small businesses pay on average far higher effective rates than most Fortune 100 multinationals because of widespread use of tax havens. The Stop Tax Havens Abuse Act of 2011 would go far to close these loopholes. We must stop subsidizing the largest and wealthiest corporations at the expense of our domestic businesses and the national economy.
• Corporate subsidies should be limited to spurring innovation, preserving the environment and public health, hiring veterans and minorities, and other job creating initiatives. Initiatives such as the Small Business Jobs Act are relatively inexpensive ways to continue to spur growth.
• America’s wars should either be paid for by surtax or by adjusting the defense budget. The defense budget should not be immune from cuts. Due to deficiencies in the federal contracting process, which appear to favor a few large corporations, we believe there is room for substantial savings.
We have not endorsed any comprehensive deficit reduction package, however select policy solutions in line with these principles have been proposed by groups as diverse as the Congressional Progressive Caucus, the Cato Institute, and the Bowles-Simpson Commission. Estimates suggest that enacting policies in line with these principles could easily save upwards of $2.75 trillion dollars over a decade, without cutting into essential federal programs on which this nation was built.
A ‘sustainable’ economy focuses on building long-term value and assets. It invests in next generation ideas and technologies while contributing to the well-being of our communities. We believe these ideas and policies to be consistent with a fair marketplace, represent the views of thousands of small businesses across the country, and will foster long-term economic prosperity.
Thank you for your consideration and interest.
Sincerely,
David Levine, Executive Director
American Sustainable Business Council