Monday, September 27, 2004

Why do American corporations hate America? The New York Times reports:

America's biggest corporations are increasingly funneling profits earned in the United States to tax havens around the globe, depriving the United States Treasury of anywhere from $10 billion to $20 billion in lost tax revenue each year, according to a new study.

The study's author, Martin A. Sullivan, ... said yesterday that at least some of the transfer probably occurred through questionable tax shelters.

In a related study, published by Tax Notes earlier this month, Mr. Sullivan concluded that that profits reported by American multinational companies from their foreign subsidiaries, and not from their operations based in the United States, soared 68 percent since 1999, to $149 billion last year. The earlier study said that the rise in foreign earnings was not accompanied by any gain in real economic activity in the tax havens, suggesting that multinationals were increasingly using offshore tax shelters to shield earnings.

Here's my favorite detail:

Mr. Sullivan's new study did not mention any companies by name. He has previously cited the pharmaceutical industry as a leading shifter of domestic profits to overseas havens....

So you and I can't save money by legally buying prescription drugs from overseas, but big pharmaceutical companies can save money by shifting profits overseas. Nice.

An earlier Times story notes that this is a new development:

According to Commerce Department data not cited in the study, American companies took 17 cents of each dollar of worldwide profits in tax havens in 2002, up from 10 cents in 1999.

Mr. Sullivan noted in an interview that in 1991, when he first seriously examined the issue, only a small part of profit was taken from tax havens....

But isn't this just an inevitable result of globalization? Maybe not:

The figures also show how Congress, by eroding the capacity of the Internal Revenue Service to enforce tax laws and through laws and treaties that favor the use of tax havens, is shifting the burden of taxes from multinational companies to individuals and purely domestic companies.

Some members of Congress, Mr. Sullivan said, will take comfort in his findings because "they believe in tax sabotage, the idea that we don't care if the I.R.S. can't enforce the laws because it means less taxes."...

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