Forum Post: Opportunity to manifest our power now! NO TAX HOLIDAY for corporations.

If I might be so bold as to suggest something, I think the first order of business for OWS and all other Occupy _ is to see that the Corporate Tax Holiday embodied in the Foreign Earnings Reinvestment Act (S.1671) go down in defeat. (I am ashamed to say that my own Senator from NC, Kay Hagan, introduced this piece of bad legislation! And yes, I've called and written her office to express my dismay.)This is essentially an end run by large corporations to allow them to bring up to $2 Trillion of earnings back into the United States at a tax rate of only 8.75%, a rate far below what most of us pay annually in income taxes. Let me give you some background.

In 2004, the American Jobs Creation Act was passed by congress and in that piece of legislation was a section allowing controlled foreign corporations (CFCs) to repatriate earnings held by those CFCs in offshore, tax haven, countries where they paid little or no tax on those earnings. This type of arrangement is extremely complex but perfectly legal within the existing Internal Revenue Code. Essentially, an American corporation creates a foreign corporation which it then controls through stock ownership. That is how it got the moniker CFC. If an American ‘person’ (i.e. corporation or other individual) owns at least 10% of the stock of a CFC then a litmus test of controlling ownership is applied. If it is found that a person owns a controlling interest in that CFC, he/she/it must pay U. S. taxes on the earnings. Without going into elaborate detail, corporations have exploited every loophole in this law in order to not pay U. S. taxes on those earnings UNTIL they come back into the U. S. as dividends. Dividends are normally taxed as regular income but when the earnings from these CFCs are repatriated as dividends at a reduced tax rate they all get a huge break paying only a fraction of the taxes that they would normally pay at the 35% corporate tax rate. Here is an example.

CFC-A wants to pay $1,000,000 in dividends to its controlling American corporation. At the normal 35% tax rate, the American corporation would be liable for $350,000 in taxes from these dividends. If these earnings are allowed to be repatriated (paid as dividends to American persons) and 85% of the dividends are allowed as a tax deduction then the American corporation would only pay the 35% tax rate on $150,000 of those dividends. This results in an effective tax rate of 5.25%, which is exactly what took place in 2004 under the American Jobs Creation Act. This tax holiday, or earnings repatriation arrangement was enacted ostensibly as a means to stimulate job creation and investment in American business. However, there are several reports that show that this tax holiday did not result in jobs or reinvestment in American businesses.

http://www.ctj.org/pdf/crs_repatriationholiday.pdf http://www.heritage.org/research/reports/2011/10/would-another-repatriation-tax-holiday-create-jobs http://www.bloomberg.com/news/2011-10-10/senate-report-calls-offshore-tax-repatriation-failed-policy.html

As pointed out in the various reports, a tax holiday for corporations does nothing more than allow them to pay dividends to American corporations (or persons) who then use them to pay bonuses to their executives or return wealth to their shareholders. Evidence shows that not only did it not create jobs but that most of the corporations that repatriated billions of dollars actually cut jobs over the next 2 – 3 years, with rare exception.

As an organization opposed to corporate greed and power, I think OWS could publicly manifest its power by helping to defeat, or greatly rewrite, the Foreign Earnings Reinvestment Act proposed by Senators Kay Hagan and John McCain. At the very least, any repatriation of earnings should be tied directly to job creation and/or reinvestment in American businesses here in the U. S. If corporations state that this will create jobs, let them give numbers and then let congress hold them accountable. American businesses are extremely shrewd and capable of analyzing in great detail anything that affects their bottom line. Surely they can come up with the number of new jobs their repatriated earnings will create. But, on another front, a speaker from the American Enterprise Institute recently stated that businesses don’t want to create jobs, that it’s not their obligation. Quite the opposite, businesses don’t want to create jobs because that creates added expense, which businesses loathe.

Through the Foreign Earnings Reinvestment Act the stage is set for American corporations to win huge concessions to their tax liabilities and allow them to continue to accumulate wealth and power at the expense of the remaining 99% of us. Under the tax arrangement embodied in this act, they would pay an effective tax rate of less than 9%. Maybe we should focus our immediate attention on defeating this bad piece of legislation.