The Ten Most Egregious Tax Loopholes in the U.S.

The Ten Most Egregious Tax Loopholes in the U.S.
Justin Renteria

A year ago Citizens for Tax Justice, a Washington, D.C., nonprofit, studied the tax returns of 280 corporations. What it found was a Beltway version of a Mafia protection scheme.

From 2008 to 2010 at least 30 Fortune 500 companies — including PepsiCo, Verizon, Wells Fargo and DuPont — paid more for lobbyists than they did in taxes. They collectively spent $476 million sucking up to Congress, buying protection for tax breaks, loopholes and special subsidies.

It didn't matter that these same 30 firms brought home a staggering $164 billion in profit during that three-year period. They not only managed to avoid paying taxes. They actually received $10.6 billion in rebates.

Facebook founder Mark Zuckerberg took advantage of a multibillion-dollar tax scam during his company's IPO.
Guillaume Paumier
Facebook founder Mark Zuckerberg took advantage of a multibillion-dollar tax scam during his company's IPO.
Thanks to the luxury-sailing industry, taxpayers helped subsidize Octopus, the $200 million yacht belonging to Microsoft cofounder Paul Allen.
Wikimedia Commons
Thanks to the luxury-sailing industry, taxpayers helped subsidize Octopus, the $200 million yacht belonging to Microsoft cofounder Paul Allen.

Defenders of the system argue that most federal tax breaks don't go to large corporations. That's true. By pure dollars, the lion's share goes for mortgage interest, employer-paid health insurance, retirement plans and Medicare benefits.

The difference is these tend to benefit everyone. They're designed for the greater good, reinforcing the pillars of self-determination: home ownership, savings and health care.

But there's another part of the tax code where 99 percent of America is barred from entry. It's where Congress sells loopholes and subsidies to those with the wallets to pay. They not only saddle the rest of the country to make up the difference, but they also turn the notion of a free market into a sitcom.

Even for companies within the same industry, the disparities are alarming. From 2008 to 2010, UPS paid a tax rate of 24 percent. Rival FedEx paid less than 1 percent.

Monsanto managed to pay 22 percent — well below the supposed corporate rate of 35 percent. But that's nothing compared to DuPont, which received a $72 million rebate — despite profits of $2.1 billion.

This sleight of hand even extends to retail. While Nordstrom paid 37 percent in taxes, Macy's rate was just 12 percent.

You don't need a Wharton MBA to see how damaging this is to the nation's financial health. Big companies are given incentive to lard up on lobbyists, accountants and lawyers, rather than use that money to improve products and services. And while small businesses may collectively be our largest and most stable employer, we've rigged the game against them, because they often can't afford to wine and dine congressmen on their own.

"The tax code is a mess," says Congressman Chris Van Hollen, a Democrat from Maryland. "I support tax reform, but not reform that's simply a Trojan horse for giving another round of windfall tax breaks to the very wealthy."

And that's the problem. President Obama and Democrats have railed for years over this brand of favoritism, only to cave at the first whiff of resistance.

Republicans are worse, prattling on about free markets while protecting just about any market-distorting loophole if the money is right. Mitt Romney, the poster child of offshore tax schemes during his time at Bain Capital, claims he has a plan to close loopholes. He just refuses to say how he'll do it.

But if you're not being bought with weekend golf retreats at Augusta National, it's easy to find giveaways we all can agree must end. Introducing the ten most corrupt breaks, designed to do nothing but pervert America's economic strength.


10. I'm Irish. No, really.
Apple Inc. may have made Silicon Valley famous, but it prefers to let someone else pick up the check for Northern California's freeways, bridges and airports.

How? By pretending to be Irish.

In the late 1980s, Apple decided that Ireland's 12.5 percent corporate tax rate was a much more comely figure than America's 35. But Steve Jobs didn't want to move to Dublin. Fortunately, Congress allowed him to fake it.

Apple created an Irish subsidiary. Then, with a flourish of paperwork, it transferred its most valuable assets — its patents — to Ireland, comically forcing its U.S. headquarters to pay leasing fees for its own inventions.

Nothing had actually changed in the way the company operated. Apple simply had new paperwork saying it was part Celtic, allowing it to dodge a substantial part of its U.S. tax bill.

But that wasn't the end of the boondoggle. The Irish subsidiary is partially owned by another company, Baldwin Holdings, which doesn't even publicly list an office address or a phone number. But it does have paperwork saying it's headquartered in the Virgin Islands, where it can stockpile its income tax-free, outside the reach of the IRS.

Most people associate such exhaustive money laundering with drug cartels. But it's now standard practice at firms such as Eli Lilly, Google, Microsoft, Pfizer and Facebook. The only difference is that when drug dealers do it, the government shows up with a SWAT team instead of a refund check.

Congress, meanwhile, is bribed to look the other way, leaving the federal Treasury to serial molestation by our most prominent citizens.

"The original sin is that we treat a wholly owned subsidiary in the Cayman Islands as if it was an arm's length separate entity," says Dr. Calvin Johnson, a tax expert at the University of Texas School of Law. "A pocket transfer from the U.S. to the Cayman Islands is like a transfer from your left pocket to your right. Any system that treats a Cayman Island subsidiary as if it is a separate entity is just asking to be destroyed."

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12 comments
fancypants
fancypants

@i #have @a hard time #understanding #what you idiots @are talking %about, $why can't *you write a thought !without hitting #shift@one$through*nine?

Mike_a_Mike
Mike_a_Mike

@BobJanz @CaptYonah and Obama has outsourced jobs as president.

Mike_a_Mike
Mike_a_Mike

@BobJanz @CaptYonah he released them. And the IRS would no better than a senator. They have no interest in his taxes.

egolterman
egolterman topcommenter

There are tax loopholes and Tax 'Grand Canyons'. Hundreds of millions a year pour into the Zoo and Museums and Science Center and Gardens for big tax write offs. The money grows and grows in their profit centers (parties, events, banquets) all tax-sheltered. On top of this, to promote and staff this, the taxpayers of St. Louis County layer on $70 million a year. End the Tax, they wont close, they wont charge admission, they wont miss a beat.  

BobJanz
BobJanz

@Mike_a_Mike @CaptYonah Really? Show me one! #Sensata. Trust this over #Fox #Koch Lies and Propaganda http://t.co/XJccE048 #tcot #TPP #GOP

jason1079
jason1079

 @egolterman Burn the museum!! Slaughter the zoo animals!! They are all dragging society down the drain!

mathmagician
mathmagician

 @egolterman

 Yep, Zoos are what is bankrupting this country. Hard hitting journalism... idiot.

Mike_a_Mike
Mike_a_Mike

@BobJanz @CaptYonah simply having an off shore account does mean tax evasion. If u know about the accounts, so does the IRS.

egolterman
egolterman topcommenter

 @jason1079

 No, end the corruption. That's all. End the corruption. Return money to the taxpayers. End the crooked deals. Actually take care of the animals at the Zoo not party guests. Go to the Museum but the Museum is not used to kill MUNY.

Just end the corruption.

 
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