Small Businesses Demand Debt Deal Address Corporate Tax Dodging

By Zach Carter, Huffington Post

Published July 27, 2011

As political leaders push to reduce the nation’s deficit with dramatic spending cuts, small business owners are asking Washington to lower the deficit by closing offshore tax loopholes, which cost the United States as much as $100 billion a year.

“This is just another example of how the tax issue is distorted by members of Congress,” says Kelly Conklin, owner of Foley-Waite Associates, a small company that designs and manufactures customized wood home interiors. “Offshore tax havens don’t have any impact on what most people consider small business to be.”

American corporations routinely set up sub-companies headquartered in nations such the Cayman Islands, which do not charge corporate taxes. Even in cases where companies are making their money in the United States, they can avoid paying U.S. taxes by stashing their profits in offshore tax havens.

On Wednesday, Rep. Lloyd Doggett (D-Texas) and 43 other House Democrats introduced the Stop Tax Haven Abuse Act, a companion to legislation Sen. Carl Levin (D-Mich.) unveiled earlier in June. The bill targets tax dodging by both corporations and wealthy individuals, who can also

stash money in secretive offshore bank accounts and even set up their own foreign corporations to avoid paying U.S. taxes. Doggett and Levin say their bill could generate $100 billion a year in revenue that is currently just sitting in corporate coffers abroad.

The legislation has the strong support of several small business groups.

“It’s outrageous that companies can take advantage of our country’s legal, social and economic infrastructure, yet they do whatever they can to avoid paying their fair tax rate to support it,” says Jody Gorran, Chairman of the New Jersey-based Aquatherm Industries, a company that makes solar-powered heating for swimming pools. “It would bring in $100 billion a year. That’s $1 trillion over the 10-year window. Go for it, for God’s sake.”

Scott Klinger, Tax Policy Director at Business for Shared Prosperity, a nonpartisan small-business advocacy group, said offshore tax loopholes are not just bad tax policy, they also mean job loses for American workers. “Tax loopholes that reward corporations for shifting jobs and investment offshore undermine small and domestic businesses that invest and create jobs in America.”

But as the clock ticks down on debt ceiling negotiations, Speaker of the House John Boehner (R-Ohio), Senate Majority Leader Harry Reid (D-Nev.) and President Barack Obama have all declined to include the bill as a component of any deal to narrow the federal budget deficit and raise the debt ceiling.

The refusal to deal with tax havens reflects more general Republican opposition to increasing tax revenues during a recession. Raising taxes, top GOP officials repeatedly say, will kill jobs and hamstring the economic recovery.

Some small business owners dispute that characterization, including Gorran. “This mantra that every dollar in tax increases is a dollar away from job creation — give me a break,” says Gorran, who employs 45 full-time workers. “It’s not taxes that affects job creation, it’s demand.”

But the lack of support from the administration for cracking down on offshore tax havens is the latest in several economic policy moves that appear to put the interests of large corporations ahead of the nation’s broader economic well-being. President Obama is currently pushing three trade agreements that appear likely to cause significant American job loses — but they are expected to also provide a big boost in corporate profits.

Earlier this year, the administration tentatively promoted “revenue-neutral” corporate tax reform — a plan that would end some special tax sweeteners for connected corporations but would also lower overall corporate tax rates. Obama touted the plan even as he rolled out a budget proposal that included harsh cuts to the social safety net.

Conklin, who has eight full-time employees and has run his company since 1978, says that dodging the tax haven bill is simply a giveaway to big companies.

“I don’t decide to hire or buy equipment based on tax policy,” Conklin says. “We know how to make shit out of wood. If some knucklehead called and asked me if we wanted to set up an offshore corporation, it would be a real simple conversation — click.”

In 2008, the Government Accountability Office found that 83 of the 100 largest U.S. corporations were operating subsidiaries in tax-haven nations. And this past June, the nonpartisan tax policy advocacy group Citizens for Tax Justice published a study concluding that 12 American corporations paid no federal income taxes from 2008 throughh 2010 on average, despite reaping combined U.S. profits of $171 billion. The companies included some of the biggest names in American business, including Boeing, Exxon Mobil, FedEx, General Electric, IBM, Verizon Communications, Wells Fargo and Yahoo. The primary tax avoidance technique? Offshore tax havens.

“These 12 companies are just the tip of an iceberg of widespread corporate tax avoidance,” Citizens for Tax Justice Director Bob McIntyre wrote in the report. “Our elected officials have a duty to the American public to make
reducing or eliminating the vast array of corporate tax subsidies the centerpiece of any deficit-reduction strategy.”

Instead, politicians appear to be battling between competing plans offered by Boehner and Reid, both of which rely heavily on spending cuts — which small firms worry could restrict demand and hurt their operations. Boehner’s plan would cut the deficit primarily by placing caps on government spending, according to the Congressional Budget Office, while text Reid would couple spending cuts with assumed savings from winding down the wars in Iraq and Afghanistan.

“This is one trillion dollars in revenue over the next ten years that is low hanging fruit for Congress and the President to pick for deficit reduction,” said Frank Knapp, president and CEO of the South Carolina Small Business Chamber
of Commerce. “That’s what we should be doing right now, not taking an ax to programs in the federal budget that strengthen our economy and help create jobs on Main Street.”

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