Report:

Who Slows the Pace of Tax Reforms?

Released by: ConnPIRG Education Fund

Introduction

As Congress considers international tax reforms that could help pay for health insurance reform, the Administration and Congress have heard from many stakeholders.

One of the more vocal groups has been the coalition called Promote America’s Competitive Edge, or PACE.  To better understand where opposition to reforms is coming from, our federal coalition, U.S. PIRG conducted a simple investigation into some of the major corporations who have signed onto one or more of the PACE coalition'smany letters to Congress (PDF), and looked at how they benefit from maintaining the status quo.

The group of twelve prominent corporations profiled rank among the top 100 largest publicly traded federal contractors that also maintain a significant presence in tax haven countries or so-called financial privacy jurisdictions. [1]

These corporations are huge beneficiaries of the current system in terms of contracting rules and their ability of avoid taxes that other companies must pay.  In 2008, these twelve corporations alone received over $10 billion in government contracts. [2] And this small group collectively has 443 subsidiaries in tax haven countries, where they pay minimal, if any, taxes.  

The twelve companies generate profits on taxpayer dollars through lucrative government contracts without contributing their fair share of taxes, leaving that burden to other businesses and regular taxpayers.  It has been estimated that the U.S. taxpayers must make up for over $100 billion per year in lost revenue due to the abuse of offshore tax havens.[3]

Additionally, this "dirty dozen" together spent nearly $6 million in Political Action Committee (PAC) expenditures for 2008, over $37 million lobbying in 2008, and over $33 million so far in 2009. [4]

Putting the Brakes on Tax Reform

Corporations have a vested interest in helping elect politicians who may give them a sympathetic ear.  They give money through various means, but most liberally through their Political Action Committees (PACS) to candidates, to parties, and to other PACs. In an attempt to further promote the lucrative status quo, corporations invest significant amounts to lobby elected officials – many of whom their PAC dollars helped elect – on numerous issues, including fighting tax haven reform. "We're going to spend whatever it takes," said Brigitte Schmidt Gwyn, of the Business Roundtable, to Politico earlier this year when asked about defeating tax reforms. [5] The Business Roundtable is a member of the PACE coalition.

It’s a self-feeding cycle. By keeping profits in tax haven subsidiaries, these corporations have more cash available to use for other purposes including help elect politicians likely to represent their interests, as well as to lobby those in office to generate more contracts and tax incentives that keep the cycle going.

The data in Table 1.0 lays out the financial interests of the twelve corporations—their contracts and tax haven subsidiaries as well as their lobbying and PAC activities.

Solutions – Giving Politicians the Option to get Big Money out of Their Campaigns

Federally, we need a voluntary system of small donor-focused fair elections. The types of reform that are required can be found in the Fair Elections Now Act (S. 152, H.R. 1826):

  •  Small donors get incentives through public matching funds to participate and support candidates,

  •  Grants are provided to enable competitive campaigns to candidates who have demonstrated strong support from their constituents, and

  • Both these matching funds and grants would enable candidates for Congress to run for office without relying on large contributions and big money bundlers, and would free them from constant fundraising in order to focus on what people in their communities want.

Solutions – Reforming Our Tax System 

Several common-sense reforms would address the loss of billions of dollars each year due to tax haven abuse. 

The necessary reforms can be found in the Stop Tax Haven Abuse Act (S. 506, H.R. 1265). These include:

  • Making it law that transactions must have some real economic purpose other than the reduction of tax liability,

  • Taxing companies controlled and operated in the United States as domestic companies, eliminating the appeal of moving “headquarters” to a post office box in a tax haven country,

  • Requiring additional reporting and disclosure from financial institutions, and

  • Subjecting hedge funds to existing anti-money laundering requirements.

Conclusion

Right now, the tax reform conversations have surfaced due to the healthcare debate. But regardless of what the revenues generated by the reforms could do for taxpayers or when Congress takes this on, it is just the right thing and the fair thing to do. 

In fact, reforms to give taxpayers a greater voice in electing officials, to give lawmakers greater incentives to put taxpayers first and to level the playing field for Main Street businesses and Main Street families are long overdue.

By working hard to maintain a status quo, powerful special interests are able to use their influence to slow down progress of common sense reforms.  Congress and the Administration need to be sure to hear all sides of the story when it comes to reform – especially the side that comes from ordinary taxpayers.

Table 1.0 – By the Numbers: Contracts, Tax Havens, Lobbying and Contributions

Using the Table:

  • Data is as of 10/26/2009. Because it is subject to change, links are available for the very latest data regardless of when this report is read.

  • Clicking on the Total Dollars in Government Contracts links will take readersUSASpending.gov, where they can find additional information on the contracts awarded, including agencies served, Congressional districts served, services provided, contract vehicle, and extent of competition. The page also provides access to data from other years and can even drill down to individual contracts.

  • Clicking on Lobbyist Expenditures links will take readers to OpenSecrets.org where information can be found with respect to trends over time, issues on which the corporation lobbied and agencies lobbied.

  • Clicking on the PAC Donations links will take readers to OpenSecrets.org where they can obtain additional information on the expenditures that were made from those corporate political action committee accounts in the 2008 election year.

Name

Number of Subsidiaries in Tax Haven Countries

Total Dollars in Government Contracts for 2008

Lobbyist Expenditures for 2008

Political Action Committee

PAC Donations for 2008

Cardinal Health

23

$1,409,524,752

$1,042,000

Cardinal Health PAC

$349,101

Dell

29

$1,210,958,955

$2,730,000

Dell Inc PAC

$195,363

Eaton

37

$190,395,972

$680,000

Eaton Corp PAC

$58,267

Exxon Mobil Corporation

32

$782,972,933

$29,000,000*

Exxon Mobil Corp PAC

$811,160

General Mills

33

$201,353,223

$769,300

General Mills PAC, General Mills Restaurants PAC

Gen Mills: $233,502
Restaurant PAC: $159,725 
 

Hewlett-Packard

14

$2,936,739,545

$5,496,000

Hewlett-Packard PAC

$401,673

IBM

10

$1,647,029,089

IBM Corp:$6,420,000, IBM Business Consulting:$160,000

No PAC

NA

Johnson & Johnson

38

$187,211,711

$6,600,000

Johnson& Johnson PAC

$1,175,191

Kraft Foods

36

$370,697,143

$3,680,000

Kraft Foods PAC

$349,994

Merck

44

$1,135,291,961

Merck and Co:$4,640,000, Merck KGaA:$1,980,000 

Merck PAC

$1,311,405

Oracle

77

$203,899,037

$4,990,000

Oracle Corp PAC

$346,102

PepsiCo

70

$218,599,638

$1,176,000

PepsiCo Inc PAC

$547,749

*This figure includes Exxon Mobil chemical and production

http://www.gao.gov/products/GAO-09-157
http://www.usaspending.gov/fpds/index.php?reptype=a; All data from USASpending.gov
3 Committee on Homeland Security and Governmental Affairs, Permanent Subcommittee on Investigations. TAX HAVEN BANKS AND U. S. TAX COMPLIANCE STAFF REPORT
http://www.opensecrets.org/lobby/clientsum.php?lname=Cardinal+Health&year=2009. All data totaled from Opensecrets.gov lobbying expenditures to date for 2009. 
http://www.reuters.com/article/ousivMolt/idUSTRE54B3QY20090512
http://www.gao.gov/products/GAO-09-157
http://www.usaspending.gov/fpds/index.php?reptype=a; All data from USASpending.gov

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