Corporate tax cuts hurt government bottom lines

ncreasing attempts by governments and corporations alike to decrease the share of taxes paid by multinational companies could lead to a crisis situation for public funding in many parts of the world, warns a new study released by one of the leading international trade union organizations. Nearly one-third of the largest US-based multinational corporations either failed to pay any taxes or managed to get a refund in at least one of the years between 2001 and 2003–a practice that adds to the burden of taxation for millions of working people–according to the study entitled, "Having Their Cake and Eating It Too–the Great Corporate Tax Break." The statistical data used in the study shows that similar trends are prevalent in many countries in the industrialized world where governments are more than willing to lower corporate tax rates. Among others, they include Britain, Japan, Germany and Italy. In the past 20 years, industrial countries have witnessed a 15 percent decline in the rate of corporate tax, a trend that reflects increased official backing for corporate interests. As for developing countries, where "tax havens" are created by governments to attract investment and exploited by companies often in violation of international labor standards, the amount of loss in corporate tax payment is estimated to be around $50 billion a year. Many governments are engaged in a competition to lower the tax rates, according to the authors of the report , who note that if corporate taxation kept receding at the current rate, it would hit "zero" by the middle of the century. The research shows that in addition to securing desirable cuts in tax payments, many companies often use manipulative accounting methods to avoid taxes such as "transfer pricing, income stripping and parking of intellectual property." "Governments must stop this tax competition if they are serious about ensuring a sustainable future for their societies," said Guy Ryder, the general secretary of the International Confederation of Free Trade Unions, which carried out the study. Ryder suggested that governments should cooperate with each other in closing the legal loopholes that have allowed companies to get away with what he calls "a kind of behavior that would land an ordinary citizen in jail for many years." The study points out that corporations as large as Boeing, Halliburton, Morgan Stanley, Pepsi, Citigroup and Xerox are either incorporated in tax havens or have a large number of subsidies there, which allows them to underreport their profits for the purposes of tax payment. Dismissing the argument that tax breaks are a must to attract foreign investment, authors of the report say their research shows that in many cases companies prefer to leave "tax haven" countries after making quick profits. Every year, the money lost to "tax havens" in developing countries is six times the amount needed to ensure that every primary school aged child in the world could get an education, according to labor researchers who note record profits for big corporations in recent years. "When companies are reporting higher profits than ever and when employer-sponsored social safety nets are being eroded, would it not be only fair to ask corporations to put something back into the public spending purse?" asks Ryder. "After all," he notes, "it is only due to government investment in infrastructure and education that these companies have been able to stay competitive. In the long term, this business of having their cake and eating it too cannot continue." Ryder was due to join a delegation of international trade union leaders scheduled to meet Russian President Vladimir Putin in Moscow on July 6. Putin will be hosting the G-8 summit in St. Petersburg later this month. The G-8–or the Group of Eight industrialized countries–includes the United States, Japan, Britain, France, Germany, Italy, Canada and Russia. The labor delegation, which also includes John Sweeney, head of the AFL-CIO trade union, was expected to urge the Russian leader to include labor rights in talks at the summit. A 13-page labor union statement prepared for summit leaders notes that worldwide more than a billion men and women remain jobless while almost half of the world's total workforce struggle to survive below the two-dollar-a-day poverty line. In G-8 countries themselves, according to the statement, growth prospects "remain unsustainably out of balance, share of national income has shifted alarmingly from wages to profits, and unemployment remains in key countries unacceptably high."