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Dave Johnson: If You Want to Reform Something, Reform the Trade Agreements

Dave Johnson: If You Want to Reform Something, Reform the Trade Agreements

When you hear anyone from the big multinationals or Wall Street using the word “reform,” watch out! The way they use the word, it means give them more and We, the People, get less. They want to “reform” Social Security, “reform” Medicare and “reform” the income tax code. And now they want to “reform” the taxes corporations pay on money made outside the United States. It’s like “reforming” an oak tree with an ax.

$420 Billion in Taxes Owed

American corporations are holding a lot of (their shareholders’) cash “outside of the country.” (But not really outside.) HOW much money are we talking about? Some $1.2 trillion as of last March. This is money these companies have made in international profits, owed to their shareholders or potentially used for investment in U.S. jobs, facilities and equipment. But they won’t bring the money back to the United States because they would have to pay taxes if they did. Instead they are holding it “outside of the country” and pushing for “reform”—meaning let them out of their tax bill. If this $1.2 trillion were repatriated and taxed at the full corporate tax rate of 35%, this would bring an additional $420 billion to the treasury for We, the People, to use to rebuild our infrastructure, etc.

“International” Often Means Profits Shifted to Bermuda, Cayman Islands, Etc.

“International” profits is, of course, a flexible term, like how Google made $10 billion in Bermuda last year, Apple’s “Double Irish with a Dutch Sandwich” and Bain Capital’s ability to be an American company when it needs to and a non-American company when it’s time to pay taxes. In other words, much of this “international” profit is the result of gimmicks or actually shifting U.S. jobs and operations offshore and then looking for a tax break for doing that.

Peter Orszag

Peter Orszag, writing [last week] at Bloomberg in As Foreign Profits Rise, Corporate Tax Rates Fall, explains two of the positions (corporate Republicans and corporate Democrats) of the issue of taxing corporations for money made outside of the United States, but treats the form of “globalization” we are experiencing as a supposedly inevitable fact of life. (Orszag, former director of Obama’s Office of Management and Budget, passed through the revolving door and is now vice chairman of corporate and investment banking at Citigroup Inc.) Orszag writes:

First, corporate-tax revenue is keeping up with recent historical averages as a share of gross domestic product. However, that’s only because globalization has raised the corporate-profit share of GDP, while reducing the share of labor compensation.

Second, both Democrats and Republicans in Congress are committed to corporate-tax reform in response to globalization. Yet they are unlikely to accomplish much, because each party’s desired reforms are pretty much the opposite of the other’s.

Yes, pitting American workers against an exploited, grossly underpaid workforce is reducing what 99% of us receive for our work. And if you define “recent” as the period since these one-sided trade agreements made democracy a competitive disadvantage in world markets, yes, corporate taxes have been a very low share of GDP.

Orszag then gets into two approaches to taxing corporations for the money they make outside the United States:

Globalization is also the main reason why corporate-tax reform is harder than most people think. Under the current complicated system, as a recent Congressional Budget Office report explains, U.S. multinationals are partially taxed on the profits they earn abroad.

Republicans and the Business Roundtable generally favor moving away from this system and toward a territorial one, in which companies would be taxed only on the profits they earn within the U.S.

The Barack Obama administration, in contrast, is concerned about companies shifting profits and jobs overseas, an activity that a territorial system would only encourage.

Right.

What Orszag misses here is that “globalization” is not something that just happened and the form of globalization that we face today is not the only possible way to conduct trade. Here is what we have as “globalization” today:

Today’s Globalization—Pitting Government Against Government, State Against State, Worker Against Worker

The multinationals and Wall Street argue we need corporate tax “reform” in response to globalization because companies based here have to compete with companies from low-tax countries. The current proposal is called a “territorial tax.” (Previously they proposed a “Repatriation Tax Holiday.”)

That’s the same logic, repeated often, as saying America's workers have to accept lower wages in response to globalization. Both tax cuts and lower pay are “needed” because our companies and our economy are competing against companies that come out of very different governmental systems—and, in some cases, are competing more or less directly with those government systems and their national resources instead of companies.

Of course, lower taxes on the companies and lower pay for the workers both mean more money for the 1% but…hey, look over there!

Not Just Countries—States Do It, Too

Saying we need lower taxes and lower pay because we are competing with other countries is the same argument as saying a state should not tax companies or should suppress unions because companies in that state can move to Texas, Alabama, etc.

The result in both cases—competing states and competing countries—is lower pay for workers and lower revenues for governments. Companies use this to effectively transfer that reduced pay and taxation into profits that pretty much go to the 1%. In other words, labor’s share of the gains decreases while capital’s share increases.

Note that while the lower pay for workers and the lower revenue for the states and countries—transferred to the 1%—lead to eventual bankruptcy of the workers and states and countries, this is not a concern for those who are on the receiving end of that transfer today—they just want that money, now, and don’t care what it is doing to workers, regions, nations or the world’s future.

“Globalization” Didn’t Just Happen

“Globalization” didn’t just happen and is not due so much to technology, like the Internet. It is the result of trade agreements we have entered into.

What these trade agreements did was expose America’s companies, workers, factories and tax base to direct competition with non-democracies and impoverished workers. That could only go one way.

Those trade agreements could have had different terms that lead to different results that lifted working people on both sides of the trade border instead of pushing terrible and increasing worldwide inequality.

Trade Deals That Make Democracy a Competitive Disadvantage

Democracy is We, the People, making decisions, and when people are able to say what they want, they say they want good wages, protections for us, as well as regulations of the companies, good schools, a clean environment, good infrastructure, some redistribution of the benefits that result from our investment—in other words, taxes on the wealthy beneficiaries of our system, including on the corporations….

When we open that system up to direct, unregulated competition from places where people have no say and are told they can’t have those things, we make our democratic system a competitive disadvantage in world markets. We make it a disadvantage to protect the environment, pay well, provide benefits, protect worker safety and the other things that we do and others do not do. Those become just “costs” to be eliminated.

It’s the trade agreements, not technology, bankrupting us. The resulting trade deficits are bankrupting us and our economy, not budget deficits….

It doesn’t have to be this way. We could have trade agreements that lift and protect working people, protect the environment and encourage democracy. But only if people learn about this and speak up.

The simple answer for corporate profits held outside the United States? Easy: Make these companies bring the money back and distribute it to their shareholders or use it to grow their companies in the United States. Problem solved.

If there is one thing that needs “reform,” it is these one-sided trade agreements!

P.S. More on trade deficits later.

Please Visit

Please visit Tax Justice Network International:

The Tax Justice Network promotes transparency in international finance and opposes secrecy. We support a level playing field on tax and we oppose loopholes and distortions in tax and regulation, and the abuses that flow from them. We promote tax compliance and we oppose tax evasion, tax avoidance and all the mechanisms that enable owners and controllers of wealth to escape their responsibilities to the societies on which they and their wealth depend. Tax havens, or secrecy jurisdictions as we prefer to call them, lie at the center of our concerns, and we oppose them.

This post originally appeared on the Campaign for America's Future blog

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