Supporters of the new tax law said the corporate cuts would lead to a $4,000 increase in the annual paychecks of ordinary Americans. Others, including those in the administration, claimed $9,000. The bills now law. Raise your hand if you make $50,000roughly the average wageand expect a $9,000 raise this year?
I suspect few hands went up.
It turns out the tax law is Washington at its worst. Outside special interests pressuring lawmakers to pass changes to a tax codealready skewed to benefit wealthy corporate intereststhat will only make things worse.
The law overhauls the system for taxing multinational corporations. In the past, we taxed all the profits of U.S. companies regardless of where they were booked, which was supposed to limit the gaming. But, the rules permitted companies to delay paying taxes on profits booked overseas, a significant loophole that allowed multinationals to avoid hundreds of billions in taxes. Instead of ending the loophole, the "fix" in the new law is to not tax overseas income at all. As one commentator wrote, moving to this new system to solve offshore tax dodging is like solving shoplifting by legalizing it.
Bad enough if the law simply continued incentives to offshore profits, but the new rules go further. If a company shifts revenue from the America to a foreign affiliate, the new rate will be at most half of what it would have been to keep the money here. Thats more an incentive to shift profits than a deterrent. Furthermore, if companies move factories, workers, and other tangible assets abroad, they can lower their tax bills to zero.
In short, the law adds a new and powerful incentive to move jobs overseas. Under the old rules, the incentives were simply to shift profits on paper to avoid taxes. Its hard to imagine a tax system more antithetical to the interests of American workers.
Its doubtful these new threats to the workforce were intentional, but the speed, politics, and corporate interests that pushed this law through Congress never stopped to consider the real-world impact.
Some, more level-headed lawmakers, like Indianas Senator Joe Donnelly, called upon colleagues to slow down, engage in a bipartisan process, and find consensus tax policies that end the offshore games and help workers here at home.
Unfortunately, politics won over policy. Washington did what it does, and workers in Indiana and across the country may soon feel the harmful changes.
Some companies have announced one-time bonuses, which is less helpful than raises to the few who receive them, but the tax changes did not stop Carrier from proceeding with layoffs. Nor did it stop AT&T nor Walmart from announcing job cuts.
It seems the only promises being kept are from companies that said, honestly, that theyd use the windfall for dividends and stock buybacksbenefiting wealthier investors rather than workers.
As for the $2.6 trillion in profits previously moved offshore to avoid taxes, the new law turns that into a loss for taxpayers too. The discounted rates of 815.5% are far less than the 35% rate under which those profits were earned. The result is that taxpayers will take a $400 billion loss, adding even more to the deficit.
We need to start thinking now about real tax reform that adds integrity back into the system. This law was supposed to stop the gaming, but its a safe bet that in the years to follow (until changes are made), well continue to read about offshore corporate tax dodging.
We should equalize the tax rate between domestic and foreign profits. That would end the incentive to move jobs and profits offshore.
We should require companies to disclose their profits and taxes by country, so we can see whos cheating and hold them accountable. And, we should strengthen rules to prevent companies from moving overseas on paper simply to avoid taxes.
Perhaps Im wrong and multinationals will pay the 21% rate instead of exploiting loopholes to get the rate down to zero. I doubt it.
When the impacts are felt, I hope it sparks a new debate about responsible tax reform that really challenges tax havens and puts the interests of Indiana workers at the forefront.
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