Why can’t we stop bestowing huge credits for corporations who pay taxes to Russia?

Illustration by Victor Juhasz

The fat cats enjoy IRS credits for taxes paid overseas to avoid paying income taxes in the United States. It’s a big loophole and Congress refuses to close it.

Even with the changes in recent years to the IRS code, the effective corporate tax rate of profits brought into this country is half the regular rate at no more than 10.5%. Meanwhile, the very lowest individual income tax is 10%.

                         2021 INDIVIDUAL INCOME TAX RATE TABLE

Tax rate Single Head of household Married filing jointly or qualifying widow Married filing separately
Source: IRS
10% $0 to $9,950 $0 to $14,200 $0 to $19,900 $0 to $9,950
12% $9,951 to $40,525 $14,201 to $54,200 $19,901 to $81,050 $9,951 to $40,525
22% $40,526 to $86,375 $54,201 to $86,350 $81,051 to $172,750 $40,526 to $86,375
24% $86,376 to $164,925 $86,351 to $164,900 $172,751 to $329,850 $86,376 to $164,925
32% $164,926 to $209,425 $164,901 to $209,400 $329,851 to $418,850 $164,926 to $209,425
35% $209,426 to $523,600 $209,401 to $523,600 $418,851 to $628,300 $209,426 to $314,150
37% $523,600 or more $523,600 or more $628,300 or more $314,151 or more

Another way of measuring the inequity is that the foreign-originated corporate 10.5% rate – which could affect companies with billions in profits – is about half the rate for a worker’s earnings of just more than $40,526 (see chart above).

Yet, to avoid even 10.5% taxes, multinational corporations are parking their profits everywhere in the world, including Russia. Some nations, like Bermuda, have no income tax at all, which explains why so many thousands of U.S. companies are “headquartered” there.

The Bermuda no-tax example may also explain why that country’s port fees for cruisers is among  the highest in the world, about twice average. Why fly all the way to Switzerland to hide your profits?

In today’s environment, doesn’t it seem self-defeating that we are at war with Russia and at the same time giving corporations tax credits for paying taxes to that Communist nation?

That question woke up at least one Senator – Rob Portman (R-OH).

I’d like to go beyond Most Favored Nation treatment and suggest we suspend our tax treaty with Russia, Portman said.

Why would we want to have a tax treaty that provides tax benefits to Russian businesses? Again, our principle there should be: no tax breaks for invaders. That would make more sense.

Portman wants to amend Internal Revenue Code Section 901 to deny foreign tax credits for taxes paid or accrued to Russia or Belarus. It would also eliminate other US tax benefits for persons within the Proposal’s scope, including tax treaty benefits, benefits under Section 892, the trading safe harbor under Section 864(b), and the shipping exemption under Section 883.

The Senator said his law denies US tax benefits to persons or companies that are “choosing to keep doing business in Russia,” but gives them several months to make a final exit. Someone should suggest to him that the war may be over by the time his plan takes effect.

♦  ♦  ♦

The inequities of our tax system that affect the 99% are ignored by Congress whether we are at war, in a pandemic or facing a Recession.

Portman’s proposal is a good idea, but has little impact on most of our population. Instead, it shows that joining the political bandwagon and gaining a headline are too often the only goal of lawmakers – not improving our lives with sensible legislation.

The tax system has been convoluted by both parties to favor the rich, corporations and individuals, by placing the burden on the middle class.  Consider the low-paid worker who has to pay 12% income tax on earnings above $10,000, versus the many corporations that pay nothing by shifting profits overseas and meanwhile moving expenses to the United States.

That 21% corporate rate at the end of the graph is lower than 80 years ago, and 16 percentage points lower than the highest current individual rate.

At one point in our history corporate taxes exceeded individual income tax receipts. For many decades individual receipts were only twice corporate. All that changed in the late 70s as corporate tax receipts dropped and personal income tax shot up as percentages of total revenues.

During the 50s, 60s and 70s, the corporate tax rate never fell below 70%. In recent years it has hovered near 35%, but suddenly fell to 21% under the Tax Cuts and Jobs Act of 2017.

Whatever taxes aren’t paid by companies must be made up for by the working class. Here’s how our income tax rate compares to other industrialized countries:

To manipulate the Media and present a better face to the public, most corporate publicity reports show all taxes paid, not just income tax.

The clever finance folks add on the worker payroll tax share of 6.2% to account for their share of Social Security and Medicare. That brings their corporate domestic rate to 27.7% and the foreign rate to 16.7%, or just slightly higher than the lowest worker combined rate of 16.2%.

Then there are those firms, like Amazon, who pay minimal income tax.

2020 2019 2018 3 yrs
U.S. Pretax Income $20.2 billion $13.3 billion $11.2 billion $44.7 billion
Current Federal Income Tax $1.8 billion $162 million $-129 million $1.9 billion
Effective Federal Income Tax Rate 9.4% 1.2% -1.2% 4.3%

Note the pre-tax income terminology. That’s not sales, just reported profit after the accountants sharpen their pencils on the truth.. The revenues tell a different story of what even $1.8 billion of income tax represents.

All totals are in billions of dollars

With nearly $500 billion in 2020 sales, Amazon corporation paid a measly $1.8 billion in income tax after deductions and having earnings assessed at a low corporate rate. While a somewhat unfair comparison, that’s about one-one hundredth the tax rate of the richest American workers.

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