Economist James Henry says Obama’s proposed 14 percent mandatory tax fails to shutdown tax dodging schemes and creates incentives for more tax dodging

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Story Transcript

JESSICA DESVARIEUX, TRNN PRODUCER: President Obama’s federal budget for 2016 received all the usual fanfare in Washington on Monday. A part of the president’s budget is a 14 percent mandatory tax on multinational corporations’ existing offshore profits. This would affect a group of large corporations like General Electric and Apple, whose offshore profit add up to about $2 trillion. None of that money has been taxed by the U.S. government, and sits in accounts abroad in countries with lower tax rates, called tax havens. But according to the president’s budget, American companies would have to pay that tax regardless if they bring the money back home.

We spoke with economist James Henry, who was featured in the documentary We’re Not Broke, to discuss the top three things you need to know about the president’s proposal. Number one: President Obama’s plan fails to address loopholes that promote tax shelters.

JAMES S. HENRY, INVESTIGATIVE JOURNALIST AND ECONOMIST: Well, it doesn’t tackle head-on a lot of the loopholes that we’ve seen. For example, last year, Facebook, 2014, had profits of $4.9 billion. How much tax did they pay? The total was about 5.3 percent of that in federal taxes. They use a scam called the stock options benefits–to pay their senior executives in stock options rather than compensation, and deduct the full cost of those options from their federal taxes. That saved them $1.9 billion.

Yahoo has just profited enormously–about a $40 billion profit on their shares in Alibaba, the Chinese internet company. They’ve contrived to use other tax loophole, a creative kind of spinoff, shareholder deal, which I won’t go into. And it brings tears to your eyes to through the meticulous details. But they’re saving $16 billion on that tax deal alone of federal income taxes. So, these two deals alone we can figure out how to get up to $18 billion in federal tax revenue just by enforcing the law.

DESVARIEUX: Number two: the president’s plan gives corporation incentives to continue tax dodging.

HENRY: Obama’s basically channeling his inner Republican here and trying coming up with something that this Congress can agree to. That shouldn’t be the standard. The standard should be: is this sensible tax policy? If we do this again–we promised the first time, in 2004, that he would never again issue such an amnesty for offshore money. Now we’re doing it again. Companies will come to believe that every five years or so they can bring back the money practically tax-free. Why will they ever comply with income taxation? And it’s really fundamentally unfair to companies that are having to compete with these big multinationals. Anyone in small business is going to have a hard time making use of these offshore vehicles or this offshore tax break that is built into Obama’s permanent proposal.

DESVARIEUX: Number three: international collaboration should be part of the plan.

HENRY: The Obama administration has been pretty lax in terms of trying to clean up the international tax system with respect to corporations. We see the case in Luxembourg where something like 320 American companies were taking advantage of special tax deals with the Luxembourg authorities. The OECD has been meeting and trying to hammer out basic reforms in the international tax system.

This is not really a time for either the Democrats or the Republicans to kind of go off their own and bring down the entire international corporate tax system.

The other thing that we should be doing is collaborating with the other OECD countries, with our competitors. We shouldn’t be engaged in an endless race to the bottom, because we cut our taxes this year to–it was Obama’s plan is to cut it from 35 percent to 28 percent for companies as a whole, 19 percent if you’re offshore. But Canada has reduced their rate to 21 percent. The U.K. reduced their rate recently. You see one round of actions by the United States being followed up by more tax cuts abroad. So, as I say, the approach that Obama should be taking in his negotiations with other countries is to begin to get some agreement on what an acceptable international tax regime is and fair rates of taxation across borders.

DESVARIEUX: For The Real News Network, Jessica Desvarieux, Washington.

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DISCLAIMER: Please note that transcripts for The Real News Network are typed from a recording of the program. TRNN cannot guarantee their complete accuracy.