Currently, many multinational corporations avoid paying U.S. taxes on revenue from foreign subsidiaries by reinvesting the money overseas, either by parking cash in various accounts or by plowing it back into foreign operations. Under existing laws, companies with operations overseas pay U.S. taxes only if they bring the profits back to the United States. If they keep the profits offshore, they can defer paying taxes indefinitely. President Obama, almost two years ago (May, 2009), proposed a plan that would have taken effect this year, and which would change that.
In a statement from that time, the White House said that in 2004, multinational corporations only paid an effective tax rate of 2.3 percent in the United States because of such allowances. Aides said that was the most recent year available for analysis, and they also indicated this situation was indefensible. Nothing was mentioned about this again until January, during Obama's most recent State of the Union address, when he indicated he wanted to close the loopholes.
Understandably, much of these deductions are legal methods of tax avoidance, many of which this administration has addressed in its tax loophole closure plan, but so much comes under the category of tax evasion, which means the deliberate misrepresenting or concealing of the true state of their affairs to tax authorities in order to reduce their tax liability, and includes, in particular, dishonest tax reporting (such as declaring less income, profits or gains than actually earned; or overstating deductions, etc.).
Within the last few days, National People's Action issued a report which was prepared for them by Public Accountability Initiative, a non-profit and non-partisan watchdog organization that focuses on corporate and government accountability. This report affirms the tax avoidance and evasion practices of the banking industry in general, and six banks in particular, over the last few reported tax years. It's a glaring and indicting exposé of how Bank of America, Citigroup, Goldman Sachs, JPMorgan Chase, Morgan Stanley and Wells Fargo used foreign subsidiaries to offshore and understate their revenues, in addition to incorporating offshore tax havens to further reduce their tax liability to the country that issued their corporate charter and where they base their corporate headquarters.
With all the talk of austerity programs, particularly from the Republican Party and other conservative outlets, the question I always have is why? Why are they always leading the charge to cut not only discretionary items, but also non-discretionary items? As I mentioned in my previous post, from March 6th, they're always looking at just one side of the ledger sheet -- the "austerity side". They never consider making corporations pay their fair share (not to mention, but I will anyway, making cuts in the biggest wasters of tax dollars, also intimately tied to and backed by international banking and multinational corporate interests, the Department of Defense).
Read Big Bank Tax Drain. Read it and get even more angry than you are now. Then, make copies and send it to your U.S. representative and both senators. Ask them why; why do We the People have to continue paying for the sins of corporate America -- first during the financial meltdown and subsequent raid on our treasury, and now because corporations refuse to pay taxes like you and I do, every year, year-in-and-year-out, and we have to suffer the burden of less government services so they, corporate America, can amass great profits without paying their fair share. Ask them today.
Big Bank Tax Drain
How Big Bank Speculation and Tax Avoidance are Starving Public Revenues and Sticking American Taxpayers with the Bill
Wall Street banks caused the economic crisis that has left millions unemployed, foreclosed on, and without prospects in the worst economy since the Great Depression. This crisis has, in turn, caused massive tax revenue shortfalls for the federal government and for state governments across the country: nearly $300 billion combined for 50 states in the years since the crisis began. To deal with these budget woes, politicians are cutting public spending: laying off teachers, attacking public sector workers, raiding pensions, closing hospitals, and eliminating essential services for children, veterans, and the elderly. Raising revenue from the wealthy, bailed-out banks that caused the crisis would be a far more sensible way to address these budget woes. This report analyzes data from the latest financial filings by the six big banks – Bank of America, Wells Fargo, JPMorgan Chase, Citigroup, Goldman Sachs, and Morgan Stanley – to expose the ways in which they continue to avoid taxes and contribute to tax revenue shortfalls, rather than pay for an economic recovery that will put people to work, keep people in their homes, and preserve the safety net – for people, not corporations.
This year Bank of America is receiving the “income tax refund from hell” – $666 million for 2010, according to its annual report filed in late February 2011. This is following a $3.5 billion refund reported in 2009. Bank of America’s federal income tax benefit this year is roughly two times the Obama administration’s proposed cuts to the Community Development Block Grant program ($299 million).
- Six banks – Bank of America, Wells Fargo, Citigroup, JPMorgan Chase, Goldman Sachs, and Morgan Stanley together paid income tax at an approximate rate of 11% of their pre-tax US earnings in 2009 and 2010. Had they paid at 35%, what they are legally mandated to pay, the federal government would have received an additional $13 billion in tax revenue. This would cover more than two years of salaries for the 132,000 teacher jobs lost since the economic crisis began in 2008.
- Wells Fargo reportedly received a $4 billion federal income tax refund on $18 billion in pre-tax income in 2009, and paid 7.5% of its pre-tax income of $19 billion in 2010 in federal taxes. Its net federal income tax benefit for 2009 and 2010 combined, $2.5 billion, is equal to the Obama administration’s proposed cuts of 50% to the Low-Income Home Energy Assistance Program.
- Banks use a variety of mechanisms to avoid corporate income taxes, including offshore tax shelters. 50% of the six banks’ 1871 foreign subsidiaries are incorporated in jurisdictions that have been identified as offshore tax havens, such as the Cayman Islands.
- Bank of America operates 371 tax-sheltered subsidiaries, more than any other big bank studied, and 204 subsidiaries in the Cayman Islands alone, according to its latest regulatory filings. 75% of Goldman Sachs’s foreign subsidiaries are incorporated in offshore tax havens.
- The banks’ private banking arms also protect the wealth of rich clients from taxation through offshore investment strategies. Bank of America’s wealth management arm encourages clients to register their yachts in foreign jurisdictions for tax reasons.
- Closing special tax loopholes on the financial sector and implementing sensible revenue-raising initiatives such as the Financial Speculation Tax could generate over $150 billion in federal tax revenue each year.
I. Big Bank Speculation & Budget Shortfalls
The federal government and state governments across the country are facing significant budget shortfalls due to lost tax revenue and increased relief spending during the recession. The breadth and depth of the recession owes to a decade of reckless speculation, fraudulent lending, lax regulation, and low interest rates pursued by the largest banks and compliant politicians, culminating in an unprecedented housing bubble.
The bubble economy rewarded Wall Street with record profits and executive bonuses, but its collapse wiped out $9 trillion in property value nationwide, destroyed the construction industry, bankrupted millions of homeowners, and plunged the entire US economy into its sharpest downturn since the Great Depression. The direct impact of this collapse on local and state tax revenues and relief spending has been disastrous and accounts for most of the states' current funding troubles.
- Collectively, states lost approximately $297 billion in tax revenues from late 2008 to 2010 due to the housing bubble collapse. Unlike cities and the federal government, states cannot borrow money to finance operating costs and must choose between tax increases, spending cuts, or a combination of the two to plug budget holes.
- As a result of lost tax revenues and projected losses, states face a combined budget deficit of $125 billion for fiscal year 2012, and have already dealt with deficits of $423 billion for 2009, 2010, and 2011 combined.
(View and download the full report here...)