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Multinational Shell Game Hurts Local Business
Tax havens create a fundamentally unlevel playing field between multinational corporations with overseas tax havens and local Main Street businesses.
As a small business owner, I pay my taxes and give charitable contributions to ensure that my community is a healthy and vibrant place. My company is dedicated to making technology, communications, and the Internet in line with federal disability laws and accessible to everyone--including wounded veterans and people with all types of disabilities. The success of my business is tied to my community's health.
So I was troubled to realize, thanks in part to overseas tax havens, that we have one tax system for multinational companies and another for small businesses and ordinary taxpayers.
Tax havens enable American multinationals to shift income and assets between global subsidiaries in order to dodge taxes. They pretend their profits are earned at their subsidiary in a low-tax haven country, such as the Grand Cayman Islands, and their losses generated in Hometown, USA, so they pay little or no taxes.
Business and Investors Against Tax Haven Abuse, a new coalition pressing for change, estimates that U.S. multinationals avoid at least $37 billion a year thanks to tax havens. Responsible Main Street businesses and individual taxpayers are left to pay the tax bills for defense, schools, roads, and other infrastructure investments vital to our quality of life.
Tax havens create a fundamentally unlevel playing field between multinational corporations with overseas tax havens and local Main Street businesses. U.S. small businesses (firms with less than $10 million in annual revenues) pay an effective tax rate of 19.8 percent in federal taxes, according to a 2009 report by the Small Business Administration.
Meanwhile, many multinationals are paying considerably less. In 2008 Goldman Sachs, with 29 subsidiaries located in offshore tax havens, reported profits of over $2 billion. They paid federal taxes of $14 million, an effective tax rate of just 1 percent-- less than a third of what they paid their CEO Lloyd Blankfein ($42.9 million).
I don't mind competing with the big boys. I have my advantages too. I'm anchored in my community and accountable to my customers. I can make decisions about my business without having my chain yanked by someone in New York City or Bentonville.
My main concern is the way this unlevel playing field reflect the disparity of power between the huge lobbying clout of multinational companies and the concerns of Main Street business and ordinary citizens.
For example, in recent years the U.S. Chamber of Commerce has stopped representing my interests. They're a different creature than my local chamber of commerce and other business associations, like the U.S. Business Leadership Network and the National Association of Women Business Owners.
The U.S. Chamber today represents 300 huge global companies, the same companies that hire teams of lawyers and accountants to find or create tax loopholes. Avoiding taxes is central to their business model, and the Chamber sides with them against the rest of us.
These global conglomerates can't compete with me on customer service or who can build a better widget, so they have to use their political power to create some other advantage. According to The Washington Post, the Chamber spent $150 million in direct lobbying funds in the last year--$3 million a week--to block health-care reform and financial reform, and to protect tax loopholes such as overseas tax havens.
More than 65 percent of all new jobs come from the small business sector. We're part of a new economy rooted in our local communities, creating real goods and services. We're not playing shell games with our taxes.
As a nation we can keep subsidizing global companies that outsource jobs and aggressively avoid taxes, or we can bolster the homegrown business sector. We better decide soon before the rest of Main Street vanishes.
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8 Comments so far
Show AllAdam Smith observed that all forms of rent, which would include interests and fees, were burdens on the economy of production. It is in the nation's interest to minimize that burden, but not in the interest of Wall Street.
In 1970 corporations payed 29% of US income taxes, today they pay 6% and within a decade the amount they pay will be so negligible that it will not be worth recording.
Taxes are just one part of the unlevel playing fields that corporations create and electeds enable. Medical insurance is an equally oppressive force for US small businesses who must compete with global companies who can make products cheaper not just in third world countries, but in industrialized countries that have single-payer and other medical systems that don't have a 30 plus percent profit factor added in. When Toyota shut down its Fremont CA plant in April it moved production to Canada where Toyota and other private employers don't need to even think about employees' medical insurance, let alone be subject to the extortion that US medical insurance has become.
One correction needs to be made to this article. There are no "American" multinational companies. These companies have no ties to any country. I briefly worked for one of the biggest and they came right out and told us that they would go anywhere in the world where they thought the could get the job done "best", and every one knew "best" really meant "cheapest". These companies are all involved with a race to the bottom for workers wages.
"More than 65 percent of all new jobs come from the small business sector."
The jobs come and go too often though. I wished that the remaining small businesses wouldn't fold too easily. I would also have to remind the author that in many professions, working for a small business is impossible and much of it is due to small businesses getting merged into bigger businesses thanks to capitalism. Main Street has already vanished into Ghost Street. The question should be how to reverse it.
Revised tax policy and taking responsibility for medical insurance away from ALL employers would be the most expedient and effective ways to reverse it.
Statistically, you are no more likely to be laid off from working for a small business than you are for a mega-corporation.
Regulating the size of banks and other corporations would control the merger-mania that Stanley mentions. Now that other industries have seen how lucrative it is for banks to be too big to fail, many other industries are merging themselves to the size where they too will be too big to fail, thereby enabling them to suck up taxpayer-funded bailouts the way the banks do.
Ray, you are correct on your second point about layoffs. Until the effects of the 1996 Telecommunications Act of 1996 became clear, I used to be able to work for small companies but now have no choice but to work for the big companies as far as my profession is concerned. I faced no layoffs whatsoever and could quit anytime I wanted to when I worked for small companies. Since 2000 when I started finding myself with only big companies to work for, I have gone through 5 layoffs altogether. For those who are lucky to pick between working in small or large companies, many are stuck between a rock and a hard place. It's either working for a small company but hope it doesn't fold too soon or working in a large company and hope that they haven't found a foreign replacement to outsource to.
The last point, bizarre as it may sound, appears to be heading that way despite earlier consequences of subscribing to too big to fail.
Ms. Ruh makes some good points. Sadly, her optimism about competing with big business is unwarranted. The "unlevel playing field" that makes this difficult-to-impossible is itself part of the inherent structure of big business: it owns government or can rent or purchase government more or less at will.
Useful responses would certainly include tariffs, closing tax loopholes and offshore havens in general, general and genuine health insurance, and a tax structure that might favor rather than punish the poor -- all very much in alignment with what Ruh argues here.
However, none of this will happen for at least a couple election cycles. I don't mean that it is useless to fight for them, only that we are in for a long and bitter winter before we see much fruit.
It seems there has arisen a need for some form of solidarity between consumers, employees, and small businesses. Of course that cannot very well happen under traditional forms of ownership, given the traditional conflicts between capital and labor under these forms.
It seems more than ever that the ground is set for cooperative models, if only because other models continue to fail ever more drastically. Plenty of people who can or could manage businesses are out there. I wonder how many have the wisdom to seek more cooperative models.
People involved with startup companies often dream of making a killing, but even that is largely motivated by the desire to have some kind of autonomy at work. Most of the communists I knew in 1974 went on to run businesses by the 1980's. They would have gladly made a different institutional bargain had something else besides wage slavery been available.
I think the general course of action looks like this:
- Vote against the wicked
- Protest government actions
- repair reuse recycle (of course)
- Stop buying from transnationals, completely if possible.
-- Grow food if you can
---- Greywater irrigation
---- No packaged food
-- Buy local if you can
-- Park the car if possible
-- Shop from cooperatives where available
---- Food coops
---- Cohousing
---- Credit unions
-- New construction should be genuinely green housing. In most of the US, this means using earth or straw to provide mass or insulation for passive heating.
-- Convert to wind and solar as each becomes practical for the individual (both are practical in general)
Obviously most of us cannot do all this. But at this point any resources that any of us put back into the international system are apt to be used to preserve the hierarchies of that system.
It would seem that instead of a traditional Marxist joining of various subclasses into a straightforwardly distinct bourgeoisie and proletariat and the resultant massive revolution, we might (might!) have the balkanization of classes into different interest groups with various partial conflicts. If so, this may lend itself to a far cozier revolution: one of strikes and boycotts, and a mix of violent and nonviolent means of negotiation between various groups.
The author is using oft-repeated myths in her analysis which do not stand up to scrutiny.
First, tax evasion has been off the table in the Cayman Islands for pushing two decades. The Cayman Islands have full income tax transparency with the United States and proactive tax reporting with 27 members of the European Union. The U.S. Department of Justice has had full authority to conduct a criminal investigation regarding any file in the Cayman Islands since 1990.
Second, she has no understanding of how the offshore model works. It can be explained quite simply.
The globalisaton phenomenon has made the world a much smaller, more accessible place. Lightening speed communications mean that investment opportunities in an emerging economy can be simultaneously considered by institutional investors sitting anywhere in the world - London, New York, Bejing or Frankfurt, for example. The question then becomes – how are the funds pooled efficiently, so that capital can be put to work in the chosen project? How are funds from investors across the globe collected so that the investor sitting in Germany is not paying US taxes for a project that will be carried out in Thailand? The Cayman Islands provides this function simply: a tax-neutral platform for pooling the investment funds; a well-practiced process of incorporation; and compatibility with securities listing requirements on most of the world’s major stock exchanges, including those in New York, Hong Kong and Dublin. What does all of this mean? That the capital invested will be maximised by minimising the tax bite in accordance with all applicable tax laws and thereby creating more jobs and economic activity .
For those who might be worried that some of these investors are not paying their share of tax, remember that the dollar invested was taxed when earned, and when profits are made they are taxed in that jurisdiction, thus taxes are paid where profits are made. Further when funds are repatriated (in the form of dividends, or other capital gains) they will be taxed on receipt. It should also be said that taxation does only one thing: it removes wealth and productivity from an economy.
Those who support the “higher tax” argument (i.e. those Governments that are facing insurmountable deficits and no idea of how to pay for them) like to insinuate that root of the financial crisis can be found in offshore financial centres. It is important to note – the financial crisis originated in the largest of the G-20 economies. There is a mounting pile of academic research to support this fact, the not least of which was the report of Michael Foot on behalf of the Chancellor of the Exchequer in October 2009. In truth the capital flows that have already been described through jurisdictions like Cayman are now fueling the global economic recovery – the largest recipient of funds flowing out of Cayman is the United States. Emerging markets are also beneficiaries, where the introduction of capital is the most effective tool for reducing poverty in these poorer nations, providing jobs and opportunities where none had existed before.
U.S. domestic spending and deficits hurt the U.S. economy, high tax policies make the U.S.less competitive in the world economy, and, thankfully, places like the Cayman Islands have in a fully transparent and accountable manner provided a massive source of inward capital flow and taxable income for the U.S.