“Tax Me If You Can!” Are Corporate Tax Shelters Really a Big Deal?
by Byrne Hobart
A few years ago, PBS put together a special called “Tax Me if you Can“. And, regardless of how you feel about paying taxes, it’s clearly a big issue: they estimate that companies avoid up to $50 billion in taxes every year through tax shelters. The number may be high, but the idea is spot on: there is a lot of money sloshing into corporate treasuries that could be sloshing into the US treasury, instead.
But that’s a superficial way to look at it. There are some important questions that tax shelters bring up, and not all of them can be answered by soaking the rich:
- Should people be penalized for following the rules? The tax code is designed to make good behavior more rewarding, and bad behavior less rewarding. But laws can’t just argue about “good” and “bad”—they have to allow specific things. If tax rules are designed to encourage companies to invest in new equipment, they can’t just ask nicely—they have to give companies a tax break based on the depreciating assets they own. And if companies use that depreciation to reduce their tax burden, is it really their moral problem? They just exist to make as much money as possible; if the rules encourage them to do that in useless ways, the rules are the issue.
- How much should corporations pay in taxes, anyway? Look at IKEA. They dodge a multi-billion dollar tax bill every year. But the company invests most of its profits in expansion, and currently has over a hundred thousand employees—all of whom spend most of their time selling incredibly cheap furniture. Add up the payroll taxes alone and it looks like they’ll end up paying more taxes if they don’t have to pay any taxes.There’s an easy way to sum it up: companies save money. They reinvest it. And if they don’t, they distribute the profits to people or to charities. So there’s no specific reason to tax companies, since the money they make gets handed to taxable individuals in the end. But there’s one good reason not to tax them. They save like crazy.
- The next round of rules will get written by the bad guys. If you know much about tax loopholes, you probably find them appalling. If you know a lot about tax loopholes, you probably exploit them for a living. The only people who know enough to permanently fix existing problems are the ones who are exploiting them in the first place.
So it’s true. Tax shelters are a huge problem. But the problem isn’t that companies are getting out of paying their fair share: it’s that they do extra work to evade poorly-conceived, poorly-implemented rules.