Mitt Romney Congratulates The Corporate Tax Cheats (MUST-READ OP-ED) [View all]

[Hissyspit]

http://www.latimes.com/news/opinion/commentary/la-oe-kleinbard-tax-cheats-20120907,0,6526020.story

Hat-tip: @nickshaxson

OP-ED

Tax planning? Or tax cheating?

Laws that encourage corporate tax havens are bad for America.

Mitt Romney speaks with the news media after making a stop at the "New Hampshire Veterans and Military Families for Mitt" event in Concord, N.H. Romney recently announced that big businesses "know how to find ways to get through the tax code, save money by putting various things in the places where there are low-tax havens around the world for their businesses." (Evan Vucci / Associated Press / September 6, 2012)

By Edward D. Kleinbard

September 7, 2012

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The other party inhabits a realm of fantasy akin to Erewhon, the fictional land created by the 19th century satirist Samuel Butler. In Erewhon, Butler wrote, "If a man has made a fortune … they exempt him from all taxation, considering him as a work of art, and too precious to be meddled with; they say, 'How very much he must have done for society before society could have been prevailed upon to give him so much money.'"

It is a pity that Republicans do not appreciate that Butler was writing ironically.

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The U.S. tax principle, and the principle at work in every other major economy, is that corporate income should be taxed in the country where it is earned. If that principle were scrupulously followed, very little income would be reported in tax havens, which generally have relatively small populations and in most cases modest manufacturing bases. But instead we find that U.S.-based multinationals claim that an extraordinary percentage of their income is "earned" in tax havens.

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The answer is that when we countenance a tax system that rewards such a tax strategy, we implicitly encourage U.S. firms to invest overseas — not necessarily in tax havens but in other major economies. Once a U.S.-based multinational's income is treated as earned outside the United States, the firm then can easily migrate its income from the high-tax foreign countries in which the income is earned to tax havens.

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When Romney endorses the idea that U.S. firms are doing right by reporting their profits overwhelmingly in tax havens, he shows contempt for a basic principle of tax law. This encourages still more aggressive profit shifting and stateless income tax planning. The missing tax revenue must be made up by domestic firms and individual Americans.

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Edward D. Kleinbard is a law professor at USC, a fellow at the Century Foundation and a former chief of the nonpartisan staff of the congressional Joint Committee on Taxation.