Why aren’t domestic corporations backing Obama on limiting offshore tax breaks?

By Martin Lobel
Lobel@LNLlaw.com

Domestic corporations should be supporting Obama’s proposals to limit offshore tax breaks so they can compete more effectively against multinational corporations. Domestic corporations that pay closer to the nominal tax rate of 35 percent are at a substantial disadvantage in competing against multinational corporations that pay an effective tax rate of 2.3 percent.

But the organizations that claim to represent the interests of small and domestic businesses, including the Republican party, have all come out against Obama’s tax reform proposals. Why? It’s a story the media should be covering.

Obama’s proposals are a step in the right direction toward leveling the playing field. In addition, Congress should also eliminate the largest single offshore tax loophole: the ability of the multinational corporations to use transfer pricing to shift profits to low-tax or no-tax countries.

Every IRS Commissioner who has ever testified on the subject has said the IRS cannot effectively prevent transfer pricing abuses. We either need to go to a unitary accounting system or simply abolish the tax code for corporations under the SEC’s jurisdiction and impose a flat tax on the profits they report, under oath, to their shareholders and the SEC. Unfortunately, that is not likely to be adopted because it would significantly impair the ability of members of Congress to fund raise.

One cynic noted the sound one heard after Obama’s proposal was the sound of the auction flag going up over Congress.

Unless reporters and editors keep the focus on tax reform while the public is outraged at having to bailout these banks and corporations, the lobbyists will prevail and the abuses will continue. And, speaking of abuses, isn’t it about time to make the boards of directors of these corporations personally responsible to the shareholders, rather than continue to act as management representatives? Why has competition held down employee wages but not executive compensation? Do U.S. CEOs really deserve ten times as much as British CEOs in salaries and benefits? Is it a failure of the antitrust laws or a failure to hold directors personally liable as fiduciaries for the shareholders?

These are questions that the media should be asking but are not.

Martin Lobel is a partner in Lobel, Novins & Lamont, a Washington, DC, law firm, and chairman of the board of Tax Analysts (www.tax.org), a source for journalists. E-mail: Lobel@LNLlaw.com

Comments

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American Express and TARP Posted by aj cushner 05/10/2009, 10:15 AM Exdellent insight into the current banking problems and the effctiveness of the position of the current administration. I can confirm that after forty years dealing with American Express, they cancelled out my six-figure-rediculously-high interest-rate credit line despite always making substantial repayment timely. Amex is one of the outfits that turned bank and accepted billions in TARP payment. They screwed their customers with high loan interest rates and then cut them off AFTER receiving government funds. It´s unfortunate that a company with the distingished history of Amex was allowed to convert to a bank and continues to lend money to businesses at absurd interest rates. Jump to top of list