Tax Fairness

American corporations are reporting record profits and the wealthy continue to grow richer every year, yet they are dodging taxes at outrageous levels. Public Citizen is fighting to right this by opposing tax cuts for millionaires, billionaires, and wealthy corporations and by lobbying for revenue-raising proposals like closing tax loopholes that benefit wealthy investors and CEOs or instituting a sales tax on Wall Street trades.

The percentage of our nation’s taxes that come from corporations is half what it was during the 1950s, an extremely strong time for the nation’s economy. Though our statutory rate is 35 percent, the amount that corporations actually pay (“effective rates”)  is much lower, with many profitable companies like General Electric, PG&E and Priceline.com paying no taxes at all in recent years. Corporations utilize public services like our roads, our courts, and our educated workforce, so it is only reasonable to have them cover their portion of the tax responsibility for paying for these essential services.

One of the most obvious loopholes in need of closure that keeps corporate effective tax rates so low is so-called “deferral,” which allows multinational companies to indefinitely avoid paying taxes on the profits that are characterized as made by foreign subsidiaries, until the point that they are “repatriated” to the U.S. and reinvested or paid out as dividends to shareholders. Right now, there is an estimated $2.6 trillion in profits booked offshore by American corporations, meaning corporations are avoiding an estimated $767 billion in taxes. If the U.S. were to unwisely move to a territorial system of taxation rather than keeping the hybrid global system we are currently under, multinational corporations would simply permanently move even more profits to the books of foreign subsidiaries and eat away at our remaining tax base, leaving the rest of us taxpayers to pick up the pieces. And, even though corporations are currently not paying taxes on those deferred profits, if the U.S. government were to allow those foreign profits to be subject to a lower tax (called a “repatriation holiday”) it would further incentivize offshoring of investments and would reward tax dodgers with a windfall.

The disastrous economic crash and Great Recession were fueled in part by tax policies that incentivized risk-taking by financial industry professionals. As part of Americans for Financial Reform and the Take on Wall Street campaign to strengthen financial reforms to protect our nation’s economy, we seek to close several loopholes that benefit the financial sector and enact new, progressive taxes that will require Wall Street to pay its fair share.  For example, Public Citizen and our partners are urging Congress to close several loopholes such as banning corporate tax deductions for executives earning more than $1 million per year and for investment fund managers’ income be taxed as wages instead of at the much lower rate for capital gains. In addition to closing loopholes, Public Citizen is leading the charge to make Wall Street pay a sales tax on financial transactions like stock, bond, and derivative trades—just as we all pay on our everyday purchases. To enact a fraction of a percent tax on Wall Street trades would strengthen our economy by calming our markets that are currently prone to wild swings called flash crashes, which are made worse by high-speed computer trading programs. Not only would a tax on financial transactions slow down these sorts of trades, it would create a robust amount of revenue that could be reinvested in our communities.

And, with our partners in the Not One Penny campaign, Americans for Tax Fairness coalition, and the Financial Accountability and Corporate Transparency (FACT) coalition, Public Citizen pushes for real tax reform that will provide greater fairness in our tax code.  For example, fighting back against proposals to eliminate the estate tax, which only applies to estates valued at more than $5.49 million, by publishing research showing that it was a small number of billionaire families who were the driving force behind the lobbying push to repeal the estate tax.

There is zero rationale for cutting corporate taxes and zero reason to think that lower taxes will generate more investment. Trickle-down economics didn’t work before and it won’t work now. Instead of giving tax cuts to the top classes, we should be increasing the progressivity of our tax system so that those who can pay more—corporations and the rich—do so, rather than the middle class and small businesses.

That’s the real recipe for a strong and prosperous economy: the wealthy and the financial elite must do their civic duty like the rest of us and pay their fair share of taxes. And, our nations’ leaders must understand that real tax reform has to take into account the need to invest in our communities, rather than give handouts to rich corporate campaign donors.

Resources on Tax Fairness