Joe Tomon’s Nov. 26 commentary — “Corporate tax cut would help Utah workers” — deserves rebutting.
He writes the U.S. corporate tax rate, currently 35 percent, contrasts unfavorably with the global average of 24 percent, putting companies like Procter & Gamble at a disadvantage with competitors. Yet P&G’s own newsletter puts its 2016 effective tax rate at 25 percent. And its rate has declined steadily the past few years. This lower tax rate is what many corporate behemoths actually pay.
Tomon also applauds the proposed territorial tax system, under which companies pay no additional tax to their home countries when they sell products elsewhere. In reality, companies like P&G already engage in tax avoidance, in unfortunately legal ways, but in ways that disadvantage our nation. One way is to borrow money from overseas subsidiaries, creating U.S. tax deductions, while not paying taxes on the income received in the tax havens. Offshore havens now account for 63 percent of all profits American multinationals claim to earn overseas.
P&G has 38 offices in tax havens and ranks 14th on a list of companies with the largest amount of foreign profits not repatriated to the U.S. It added $4 billion to its overseas cache in 2016, bringing to $49 billion the total foreign profits it shields from the IRS.
The non-partisan Institute on Taxation and Economic Policy warns that the territorial tax system would lead to more tax avoidance and less investment in the U.S., expand existing breaks for offshore corporate profits, increase use of offshore tax havens and reward corporate offshoring, raise less revenue at home, and disadvantage small businesses and domestic companies which cannot shift profits offshore.
Just as bad, a 2011 Fortune article details how P&G reopened a loophole closed in 1997. The Morris Trust loophole enables a company to stick an unwanted business into a new corporation owned by its stockholders, tax-free. Minutes later, a buyer acquires the new corporation in a tax-free stock for stock deal. If the sales had been straightforward, both the federal government and state governments would have garnered over $2 billion. P&G did three such deals over 10 years — Jif Peanut Butter, Crisco and Pringles — with profits of $6 billion.
These tax drains made Congress tighten the rules to require shareholders of the selling company to end up with a majority stake in the acquiring company. However, P&G still found buyers to do more such deals and avoided paying billions in taxes.
In response to lower foreign tax rates, we should instead eliminate tax loopholes that enable multinational corporations to avoid paying U.S. taxes. Ordinary citizens must make up this shortfall.
Additionally, despite record profits, P&G in 2016 launched a round of $10 billion in cost cuts over the next 5 years. Since 2012, P&G has cut 34,000 jobs (a 26 percent reduction) and sold or shuttered 17 plants. Just two months ago, the company cut jobs in Ohio.
Donald Trump, as a campaigner, said he would tax offshore corporate profits the same way corporate profits are taxed. Most Americans agree that foreign profits of U.S.-based companies should be taxed. Trump’s now done a 180. I am appalled that Sen. Orrin Hatch has long opposed measures to prevent offshore tax avoidance. He says the proposed Senate tax bill “will help to level the playing field for business — large and small — and ensure we keep more jobs and more investment here at home.”
Tomon says, “When P&G succeeds in international markets, it means we succeed here at home, too.” Tomon, Trump and Hatch are untruthful.
Rochelle Kaplan, Cottonwood Heights, is a retired high school teacher, acting state policy chair for the Utah section of the National Council of Jewish Women and a board member of the Alliance for a Better Utah.