How Corporate Tax Loopholes Compromise Our Future

By Donald Simonson, Ph.D. 

The notion of “paying it forward” is a popular one, and while we may not think about our income taxes as a form of paying it forward, that’s exactly what we’re doing. The public works that we all depend upon today—roads and highways, schools and parks, telecommunications and electrical grids, even courts and prisons—were made possible in part by taxes paid by past generations. And the taxes we pay today won’t just go toward keeping these systems and infrastructure in good repair, they will also be needed to plan for our future and address unexpected issues and opportunities. This kind of long-term vision is the foundation upon which the United States was built.

Our public works and infrastructure don’t just improve our quality of life, they also make our modern economy possible. Savvy American corporations understand that they depend on this infrastructure and that they bear responsibility for helping to pay for it. As the new report Burning Our Bridges (Center for Effective Government) shows, much of our nation’s infrastructure needs could be covered simply by collecting income tax on the profits that several corporations have retained overseas.

Over the last several decades, U.S. corporations have been paying a much smaller share of the nation’s taxes. In the 1950s, corporate income taxes made up more than 25 percent of the tax money collected by the federal government. It has now shriveled to just over 10 percent. Here in New Mexico, corporate income tax revenue is expected to decline by 60 percent.

While their tax bills are down, corporate profits are at record highs. Tax breaks, loopholes, and creative accounting practices are at record highs, as well. The Burning Our Bridges report looks at the loophole that allows U.S. corporations to transfer their profits to other countries that have low tax rates (or no taxes at all). The report juxtaposes the rapid rise of the offshoring of American corporate profits with the plunge in federal funding for infrastructure.

Among some of the report’s disturbing findings:

  • Corporate offshoring tax abuse costs the U.S. Treasury an estimated $90 billion annually.
  • Bringing our nation’s aging infrastructure up to 21st century standards will cost $3.6 trillion over the next five years.
  • Our failure to make these investments will cost us $1.8 trillion a year in travel delays, water leaks and power outages.

Individuals and American businesses must bear the $1.8 trillion cost of inaction together if we allow our infrastructure to continue crumbling and failing. No business wants to lose money because of failing transportation or undependable power, but that is what will happen. Businesses understand it takes investment to ensure future profits and that includes investment in infrastructure. Infrastructure projects are appreciated by economists on the left as well as the right. The question remains: how do we pay for infrastructure, particularly when we’re collecting fewer dollars in income taxes?

New Mexico is facing this same conundrum. Despite the fact that New Mexico has granted hundreds of millions of dollars in corporate tax cuts over the last few years, special interests continue to lobby for more. In fact, in the just-concluded legislative session, a bill that would have cut business taxes passed the House, but not the Senate. The special interests want the Governor to call the Legislature back into a special session to pass those tax cuts. But that’s not all. They also want a capital outlay bill to fund public works projects passed as well.

We can’t have it both ways. If business groups want a state with reliable public works and infrastructure, they must be willing to make investments in it. We all have a duty to pay it forward for future generations. Forward thinking, profit-seeking businesses know they must pay their fair share to help keep our state’s and nation’s infrastructure sound.

Don Simonson is treasurer for the Board of Directors of New Mexico Voices for Children and an emeritus professor of finance at UNM.

This is post originally appeared at New Mexico Voices for Children

Tik Tok… not just a Ke$ha song! Clock is ticking on Governor’s decision whether to close corporate tax loophole (VIDEO)

Will she or won’t she? That IS the question.

Will Governor Susana Martinez do the right thing and and sign Senate Bill 9 into law, closing the tax loophole for Big Box out-of-state retailers and give New Mexico businesses a fair shake in the bargain? Or… (shudder), will she veto the bill? (See “Countdown to Decision“.)

As Sarah Kennedy explains, time is running out!


 

To contact the Governor’s office:

Phone: 505-476-2200

Email: http://www.governor.state.nm.us/Contact_the_Governor.aspx

 

“Baby Step” for Big Boxes Only: Senate passes limited combined reporting bill

By Matthew Reichbach

The state Senate passed a narrow combined reporting bill (SB9) that would require so-called “big box” stores to pay taxes on income earned in New Mexico. The bill, which tracked the Senate Finance Committee substitute, exempts other businesses like multi-state banks and national fast-food and restaurant chains from combined reporting.

The measure cleared the Senate on a party line vote, with all Democrats voting for the legislation, all Republicans except for one, who was absent, voting for the legislation.

In addition to requiring the big box stores to file taxes using combined reporting, the bill drops taxes on the top corporate income tax rate from 7.6 percent to 7.5 percent. One reason, according to the bill’s sponsor Sen. Peter Wirth (D-Santa Fe), is that the Senate Finance Committee was wary of dropping the corporate tax rate too far in the current turbulent economic times.

There was a long debate on an amendment by Sen. Eric Griego (D-Albuquerque) that would have returned the bill to the original language before it was changed in the Senate Finance Committee. This would have required all out of state corporations to pay their taxes using combined reporting. This, Griego said, would have made sure that entities such as banks would pay their fair share in taxes in the state.

That amendment failed with only five Senators voting for it.

This was the first time that the legislation, which Wirth has carried since he joined the legislature in 2005, has passed the Senate. Wirth made a number of concessions to allow the bill to pass, including lowering the top corporate tax rate and restricting the combined reporting requirement to “big box” stores.

The legislation defines a “big box” store as those ” a unitary corporation that provides retail sales in a facility of more than thirty thousand square feet under one roof.”

Wirth referred to the legislation as a “baby step” a number of times and is a revenue-neutral piece of legislation. He noted that if his bill in 2009, which did not drop the top income corporate tax rate and related to all out of state corporations, it would have increased state revenues by $80 million to $90 million per year according to the fiscal impact report.

Sen. Steven Neville (R-Aztec) disputed the notion that this was a tax loophole that gave out of state corporations an edge. He said that it “is the law of the land of the state of New Mexico.”

Griego said that it was all semantics and they could debate what a loophole really is.

Allan Oliver, CEO of the New Mexico Green Chamber of Commerce, applauded the Senate vote. Oliver said, “This is a big win for New Mexico’s small businesses. This bill lowers corporate taxes for small business, requires ‘big-box’ corporations to pay their fair share and helps our small retail businesses compete on a level playing field.”

Wirth also referred to the bill being one that would help level the playing field for locally owned businesses and used it as an example of why he believed that broader tax reform is needed.

“We’ve got a tax code right now filled with winners and losers,” Wirth said.