The federal tax code has more holes in it than Swiss cheese. There are two sides to the current deficit discussion in Washington: one, we need to spend less, a lot less; and two, we need to generate more revenue. The tax code, if revised properly, could generate billions of dollars. Currently, it is so complex and contains so many loopholes that it encourages cheating, causes accidental overpayments, reward special breaks, and is difficult to administer. It now runs 3.8 million words, changes at the rate of once a day, and makes compliance so difficult that taxpayers devote about 6 billion hours and $163 billion dollars a year just to file.
Many Americans were appalled when it was revealed recently that General Electric would pay no taxes for 2010, despite U.S. profits of over $5 billion dollars! Yes, there is a top corporate tax rate of 35 percent, but it is well understood that nobody pays that. One the contrary, many companies pay nothing at all. General Electric works all over the world, and under tax law, it isn’t taxed on its foreign profits as long as it says that it is reinvesting those profits abroad. Many companies become expert at shifting profits abroad to foreign subsidiaries in low tax or no tax nations. In 2008, Goldman Sachs, had 29 subsidiaries located in offshore tax havens and reported profits of over $2 billion dollars. Goldman Sachs paid federal taxes of just $14 million dollars on those profits!
The National Commission on Fiscal Responsibility and Reform identified 75 different tax breaks and 30 different tax credits offered to business. These same businesses spend billions of dollars each year to lobby Congress and are famous for hiring former IRS officials and former congressional staffers. When you pile up all these accounting tricks and tax breaks, it is no surprise that many companies barely pay any corporate income taxes. The General Accounting Office reported that in 2008 that two out of every three United States corporations paid no federal income taxes from 1998 through 2005. Thanks to the loopholes and tax breaks the effective corporate tax rate is actually lower in the United States than many other countries. In 2009, corporations made about $1.5 trillion dollars in profits and paid $225 billion dollars in taxes, an overall rate of 15 percent.
Officials generally agree on what should be done: lower the tax rates and eliminate most of the current code’s $1.1 trillion dollar a year deductions, credits and loopholes. If we were able to do this, you could have a tax code simple enough that most people could file on a postcard. Corporations and businesses would pay their fair share. Yes, it is time to say goodbye to “Loophole Land.” The biggest problem would be what to do with the 12,965 lobbyists in Washington who spend $3.47 billion dollars each year!