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Friday, July 25, 2014

Delaware, corporations, and the lie that is "Economic Patriotism"

Before you start reading this article, here's a teaser:  the man who just argued for a large dose of "economic patriotism" is US Treasury Secretary Jack Lew, who (ironically?) has made a career out of moving between government posts and ... representing Citigroup interests in the Bahamas, Cayman Islands, and Hong Kong tax sanctuaries.

The News Journal gets it wrong ... again.

Editorializing about the issue of "corporate inversion," that is, corporations like Walgreens ceasing to be American companies and moving their operations overseas for tax benefits, the WNJ says,
Corporations consider this action because of what they see as problems in the U.S. tax structure. The U.S. corporate rate can be as high as 35 percent, the highest among industrial nations.
OK, this is the standard party line for corporations, government, media, and both major political parties in Delaware, and it is oh-so-predictably followed by the rest of the corporate party line:
The most obvious solution would be to lower the tax rate. Congress should not come up with temporary fixes, such as tax holidays for repatriated profits. Instead, it should bring the rate into line with other countries.
First, let's be clear:  corporate tax rates (despite the nominal tax rate of 35%) are nowhere near that, because of all the tax breaks that corporations have purchased themselves.  Quoth the NYT on a General Accounting Office study:
Profitable corporations based in the United States had an effective federal tax rate of 13 percent on their worldwide income, 17 percent including state and local taxes.
Moreover, effective corporate tax rates have declined by about 30% over the past three decades:
According to the Internal Revenue Service, corporations had gross profits of $1.8 trillion in 2007 and taxable income of $1.2 trillion. Since the Tax Reform Act of 1986, new corporate tax preferences have widened the gap between gross income and taxable income. In 1987, gross corporate profits reported on tax returns were $328 billion and taxable income was $312 billion. Thus since 1987, taxable income has fallen to 68 percent from 95 percent of gross income. 
Dozens of the largest US corporations pay no taxes whatsoever when their tax liabilities are offset by the tax breaks, credits, and subsidies they receive:
Citizens for Tax Justice looked at 288 profitable Fortune 500 companies and said that 26 of them - including Boeing Co (BA.N), General Electric Co (GE.N) and Verizon Communications Inc (VZ.N) - paid no federal income tax in the five-year period. 
The group also said that 111 of the 288 companies paid no federal income tax in at least one of the five years measured. 
Note: in this article a Boeing spokesman challenges these results, arguing that during that period his company paid $2.9 billion in corporate income tax.  This ignores an $8.7 billion tax break Boeing received just last year,  or the $199 million tax refund the Feds issued Boeing in 2013:
Boeing’s tax return for 2013 is complete. Although the aerospace and defense giant booked a profit of $5.9 billion last year, the U.S. government winds up owing the company $199 million.
That's not a one-time event, either:
Over the past dozen years, during which Boeing reported to its shareholders a total profit of more than $43 billion, the company’s net cumulative refund of federal tax is more than $1.6 billion. 
The reality is that huge, multi-national corporations are no longer capitalist entities, but rather are tax farmers for the State and welfare parasites, as Libertarians Joel Schlosberg and Thomas Knapp write in C4SS:
Underneath the veneer of common interest between the government, big business, and the general public provided by the legitimizing ideology of “patriotism,” there is and always has been a symbiotic corporate-state alliance parasitic on the latter. The state provides corporations such favors as liability shields, regulations keeping out new competitors, and labor laws preventing workers from holding out for higher wages.
Moreover, Schlosberg and Knapp point out that all this government agonizing over tax breaks and borders is an example of selective outrage:
It is true that the corporate-state alliance has been strained by the panoply of neoliberal economic policies. But “globalization” requires doing away with borders only very selectively, when it suits corporate purposes. The American superstate and its international “trade partners” are more than willing to ignore borders when corporations benefit by moving goods from low-cost labor centers to high-profit sales centers. But that same state and those same partners consider borders of paramount importance when it comes to capturing the tax revenue that pays for all the perks their corporate symbiotes depend on for their continued existence. 
This brings us to a very important point about Delaware, that Scholsberg and Knapp inadvertently make:
Corporate influence skews the implementation of even public services as seemingly neutral as roads in a direction that benefits corporations first and the public second. 
The WNJ talks about the scare that Pfizer would purchase AstraZeneca and leave Delaware high and dry:
Most Delawareans became aware of the problem when the pharmaceutical giant Pfizer, an American company, tried to take over AstraZeneca, a United Kingdom company. Both have operations in Delaware and in Maryland. Pfizer's announced intention was to switch its incorporation from the United States to the United Kingdom and gain a lower tax rate. Luckily, the attempt failed. 
What the News Journal conveniently forgets to acknowledge (amidst all the gnashing of teeth over our "hole" in the highway budget) is that part of the sweetener to bring AstraZeneca here in the first place the State of Delaware gave the company $110 million in corporate welfare, including a $70 million road-building project that improved the roads around the plant:
Upon its founding through a merger in 1999, AstraZeneca received over $40 million in grants and tax credits from the Delaware state government to establish its North American headquarters in Fairfax. It employed about 5,000 workers there as recently as 2005. The Delaware Department of Transportation spent another $70 million improving the roads in and around the new campus. But in 2011, the company eliminated its entire research department on the Fairfax site, laying off 550 researchers there, as well as 600 more workers throughout the country. In addition, it began the demolition of 450,000 square feet of laboratory space which was only 10 years old. It is also working to sell two more buildings on the campus. 
This is precisely "skewing" of the implementation of public services that Libertarians are talking about.  Do you really believe that the best investment of $70 million in our roadbuilding funds was improving the entrance for AstraZeneca?

So while the News Journal and all the politicians from the "major" parties are out pimping for lower corporate tax rates on the one hand, and passing out corporate welfare checks with the other, you've got to ask yourself, "When is this ever going to change?"

Believe it or not, it's starting to.  Groups like the Americans for Democratic Action, the Greens, the Libertarians, the Campaign for Liberty, and even the 9-12 Patriots are starting to find some common ground in terms getting the overwhelming corporate influence out of Delaware politics.

It certainly won't happen overnight, especially as none of these groups has managed to elect anybody to the General Assembly to be a more public voice.  But it is starting to happen.

And, of course, our local Gannett-owned corporate media won't be telling you about it when it does.

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