U.S. Tax Law Helps Multinationals Rather Than National Businesses
One of the fundamentals of the US economy is that small businesses are the backbone of US commerce. In fact, companies with less than 500 employees represent 99% of businesses in the country. But even though these companies employ a large portion of the country’s workforce, they continue to be treated poorly by large multinational corporations when it comes to U.S. tax laws. Congress should fix this and ensure that hard-working American companies can continue to provide good jobs across the country.
My company, Atlas Tool Works, is a perfect example. For over a century, we’ve been manufacturing precision metal components for industries as diverse as aerospace, medicine and telecommunications. We’re firmly rooted in our Illinois community and pay the income, property, business, and sales taxes that support our state’s schools and infrastructure.
Much of our competition comes from foreign producers, especially state-owned enterprises in China. Not only do many of our competitors benefit from massive government subsidies, they don’t pay the US corporate taxes we pay every year.
This highlights a larger problem: Multinational corporations that have no loyalty to the welfare of the United States are able to pay a much lower tax rate when they sell goods and services on the market. American market.
How is it possible? Part of the reason is that multinationals report a set of profits to shareholders and an entirely different set to the US government. Despite the claims of some accountants, these two sets of books do indeed create appalling tax differences.
This should be fixed by a “tax on the books” on the largest multinational corporations, including both the parent company and its subsidiaries. A tax on books uses âfamilyâ financial data of the company’s shareholders to calculate the base of its tax rate. This is different from the wording that multinationals currently use to reduce their effective tax rate.
As of 2018, the corporate tax rate in the United States has been 21%. But last year, Nike paid an effective tax rate of just 14%. Apple paid 13.3%. Facebook paid 12.2%, Pfizer paid just 6.37%, and Abbvie, maker of the arthritis drug Humira, had an effective tax rate in 2020 of minus 36%. And these are just American multinational corporations. Foreign multinationals are also playing the same games with the IRS.
What makes all of this possible is profit shifting or the ability for multinational companies to shift their profits to subsidiaries in the Cayman Islands and other tax havens. However, small domestic businesses like mine usually don’t use these nifty accounting tricks, leaving us paying all federal tax.
Last year, the Coalition for a Prosperous America (CPA) reported that America’s 500 largest state-owned companies were paying an average federal tax rate of just 8.7% on their 2019 profits. According to CPA, tax these in full. Global companies are said to have brought in an additional $ 97.8 billion to the US Treasury.
As it stands, however, when multinationals skimp on paying tens of billions of dollars in treasury revenue, small businesses like mine end up bearing a disproportionate share of the tax burden.
It’s obvious. It bypasses the US Treasury. And it rewards companies that move jobs out of the United States.
Multinational corporations should not be allowed to avoid taxes by reporting one set of books to their shareholders and another to the IRS. Ending this tax evasion would be a welcome reform and would strengthen efforts to put American businesses on a level playing field with their foreign competitors. The tax on books currently being proposed in Congress could move the needle in the right direction, especially since it includes foreign “parent companies” that make large profits in the United States.
Today, multinational corporations are using paper tax games to shift profits and avoid paying taxes in the United States. The obvious answer is to close tax loopholes.
When businesses earn income in the United States, they should pay the same tax rate as domestic businesses. It would help national companies like mine â which employ workers here at home â to compete more fairly in the global marketplace. Otherwise, anonymous multinationals will continue to make record profits while giving little back to the US economy.
This column does not necessarily reflect the opinion of the Bureau of National Affairs, Inc. or its owners.
Zach Mottl is President of the Coalition for a Prosperous America (CPA) and President of Atlas Tool Works in Lyon, Illinois.
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