Death and Taxes

Tax day is stressful enough, but this year, Californians are faced with the added pressure of filling a $15.4 billion hole in the state budget. If Republicans successfully block Californians from voting on temporary tax extensions, then the state will be forced to make even more drastic and brutal cuts to fill the gap.

The connection between what we pay in taxes and what we get in state services has never been so clear. Every dollar the state loses in revenue is a dollar that comes out of our schools, our universities and our state’s future. 

As a graduate of California’s public schools, community colleges and universities, I would gladly vote to extend temporary taxes that I pay. I would even vote to give myself a tax increase if I knew it would save public education in California. I owe it to the state that educated me to at least pay my fair share in taxes.

But not everyone shares that sentiment. For the last several decades, corporations have employed aggressive strategies to dodge their responsibility to pay state and federal taxes. The outcome is that over the years the share of taxes paid by corporations has declined, shifting more of the burden of paying for roads, schools and services to average taxpayers like you and I (even though corporations clearly benefit from those taxpayer-funded services just as much as the rest of us, if not more).

We all know that nothing is certain except death and taxes, so how do these corporations manage to beat the taxes part? The first step is to aggressively go out and create giant loopholes in the tax code. General Electric currently wears the crown as the master at helping legislators create just the right tax breaks for their company. Not only did GE not pay taxes in 2010, the company got a $3.2 billion tax benefit, all while pulling in worldwide profits of of $14.2 billion. A recent New York Times article details how GE’s 975 person strong tax department—more like an army—manipulates the tax code to their advantage.

According to the New York Times:

After the World Trade Organization forced the United States to halt $5 billion a year in export subsidies to G.E. and other manufacturers, the company’s lawyers and lobbyists became deeply involved in rewriting a portion of the corporate tax code, according to news reports after the 2002 decision and a Congressional staff member.

By the time the measure — the American Jobs Creation Act — was signed into law by President George W. Bush in 2004, it contained more than $13 billion a year in tax breaks for corporations, many very beneficial to G.E. One provision allowed companies to defer taxes on overseas profits from leasing planes to airlines. It was so generous — and so tailored to G.E. and a handful of other companies — that staff members on the House Ways and Means Committee publicly complained that G.E. would reap “an overwhelming percentage” of the estimated $100 million in annual tax savings.

According to its 2007 regulatory filing, the company saved more than $1 billion in American taxes because of that law in the three years after it was enacted.

G.E. is not the only corporation to play the tailor-made tax break game. The Daily Beast recently featured 15 of the top “Tax Escape Artists” on their website, including a number of California companies (Google, Hewlett-Packard, Oracle and others). 

Just as corporations work Congress for federal tax breaks, they also work the state legislature for even more breaks from state taxes. In the 2008 and 2009 budget negotiations, corporations scored three major changes to the tax code that would benefit them. One of the changes to the tax code, the elective single sales factor, would allow out-of-state companies to choose the method used to calculate how much they would pay in state taxes. Yes, you heard right. Corporations could go back and forth between two formulas—always picking the one with the lower tax bill, and leaving Californians to pick up the tab. 

Those tax breaks are obviously a sweet deal for corporations, and this fall they proved they're not giving them up without a fight. When the California Teachers Association placed Proposition 24 on the 2010 ballot to repeal those massive tax giveaways, corporations sprang into action.  Genentech, Walt Disney, Time Warner and CBS were just a few of the companies that threw millions of dollars into defeating Prop 24. Not coincidentally, many of the top corporate donors to defeat Prop 24 are the same names on the Daily Beast list of top “Tax Escape Artists”

Genentech donated the highest amount to the campaign—$1.6 million—publicly stating that the company needed the tax breaks to keep jobs in California. It’s an age-old argument legislators hear all the time—whenever anyone threatens to repeal a tax break, corporations roll out the old “job-killer” argument. Turns out the opposite is true. After Prop 24 was crushed by corporate money and the tax breaks were saved, Genentech announced they were laying off 840 employees in their Vacaville and San Francisco locations. 

The next step is for corporations to use all the tax loopholes they’ve created. Oil companies have turned out to be the slickest at exploiting tax breaks to their benefit. On the federal level, oil giants have used oil spills and their massive environmental, social and economic consequences as an opportunity for a tax write-off. Yes, that’s right. Oil companies can deduct the amount that they pay out in punitive damages for the irreparable harm they do to communities, ecosystems and lives. Exxon managed to avoid paying 40 percent of the $500 million they had to pay in punitive damages for the Valdez spill. I wonder what BP will be able to deduct for destroying the Gulf? 

Of course, not all companies have the resources of a General Electric, Exxon or BP to find all the holes in the tax code. Luckily, a whole cottage industry of consultants has sprung up around finding tax breaks for corporations. The California Enterprise Zone program has spawned an army of consultants that troll the Zones looking for businesses who have not yet claimed EZ hiring credits. The consultants make their money by taking a percentage of the tax savings of their client companies—essentially skimming taxpayer money off the top. And we’re nto talking mom and pop shops either. The overwhelming majority of EZ tax breaks went to companies with assets over $1 billion—not exactly companies that need help from a program targeted to economically depressed areas.

Finally, corporations have to defend their hard-won tax breaks. In California, the Chamber and other trade associations oppose any attempt to repeal, reduce, reign in or shine a light on their tax breaks. The real bad boy on the block is Amazon.com – just mention an “internet tax” and Amazon springs into action. When Assemblymember Skinner introduced a bill to make Amazon collect sales and use tax from internet sales, a bill supported by numerous businesses, Amazon threatened to sever ties with affiliates in California

The result of all these tax breaks? Well, we don’t have much, if any, empirical evidence of job creation. But we do know that the state has lost billions of dollars in corporate tax giveaways— dollars that we could be using to fund our schools, community colleges and universities. Or fix our roads and bridges. Or keep seniors in their homes and out of institutions.

It’s time to fix the holes in our outdated tax system.