Forum Post: Please be informed! Congress to Vote on Tax Holiday for U.S. Corporations Offshore profits!!!!!!

Please read this outrageous article posted on REUTERS today!

Congress to Vote on Tax Holiday for U.S. Corporations Offshore profits!!!!!!

David Cay Johnston » See all analysis and opinion Tax repatriation Oct 19, 2011 12:00 EDT

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offshore profits | tax holiday | u.s. corporate tax income | u.s. politics

By David Cay Johnston The author is a Reuters columnist. The opinions expressed are his own.

The practice of favoring big corporations seems likely to take a costly leap forward soon, if Congress passes an $80 billion tax holiday for a handful of U.S. multinational corporations with untaxed profits overseas.

Sponsors of legislation to grant the holiday, which is gaining support in Congress, say it would encourage these companies to repatriate their profits, giving an infusion of cash to the sluggish U.S. economy that will create jobs.

But this ignores the negative impact on the losers: the other 99 percent of corporations who are not eligible for such a deal. Then there are the legions of workers likely to be pink-slipped, and taxpayers generally, who will have to make up the shortfall with more taxes and fewer services.

There are smarter ways to deal with the $1.4 trillion of U.S. profits sitting offshore and avoiding the U.S. corporate income tax. We’ll get to those solutions. But first, here are some facts on how the system works.

Companies license the rights to pharmaceuticals, software and other intellectual property to offshore subsidiaries, or they engage in cost-sharing arrangements with these offshore units.

The subsidiaries then charge the U.S. parent royalties and other fees, which the parent can count as tax-deductible expenses in the United States. And the subsidiaries take their profits in entities known as “tax nothings,” so-called because they are invisible to the U.S. Internal Revenue Service. So long as the profits are indefinitely reinvested offshore, no tax is due. The problem arises when the companies want to bring the profits back to the United States. That is where a tax holiday comes in.

PFIZER TOP OF LIST IN ’04

When Congress passed a similar tax holiday in 2004, the biggest beneficiary was drug manufacturing giant Pfizer Inc , according to a report to Congress by the IRS in June 2008. Pfizer brought back $37 billion and saved $11 billion in taxes.

Since then, the company has piled up another $42.5 billion in untaxed profits overseas, its disclosure statement at the end of last year showed.

Pfizer is among several companies lobbying Congress for another holiday for untaxed offshore profits. It and other firms want an 85 percent tax rate discount. Under the bill before Congress — offered by senators John McCain, a Republican, and Kay Hagan, a Democrat — the discount would be 75 percent.

Are our politicians unaware that the biggest businesses, and the wealthiest business owners, already bear lighter tax burdens than those who make less?