Nathan Proctor: Why is Neal supporting corporate loophole?

Posted Saturday, August 29, 2015 11:14 am

BOSTON >> It probably won't surprise you that many of the biggest multinational companies pay much lower tax rates than Main Street Massachusetts businesses. In fact some of the world's most profitable companies pay no corporate income tax at all. We've heard about how Apple, Google, Verizon and General Electric use complicated tax dodging schemes to avoid paying their fair share.

What is a bit surprising is that Rep. Richard Neal has co-sponsored a measure that opens up a new loophole in our tax code that would make the problem worse.

Another tax dodge

Rep. Neal, a Springfield Democrat, has co-sponsored legislation, introduced by Rep. Charles Boustany (R-La.), to tax profits earned by "intellectual property" — like patents, copyrights and trade secrets — at a far lower rate than other kinds of profits. House Budget Chairman Rep. Paul Ryan celebrated the move, and has long support this kind of policy, adding "I applaud Charles and Richie."

One way that companies dodge taxes now is by relocating their intellectual property and its income to a subsidiary in a country that levies little to no income tax, like the Caymans Islands. Even when their product is sold in Pittsfield, a company can claim that profit was earned offshore by a zero-employee subsidiary who owns the copyrights involved.

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That's why companies with a lot of intellectual property — such as tech companies and pharmaceutical companies — tend to be some of the most aggressive about offshore tax dodging: They can pretend that costs are located elsewhere merely by registering patents or licenses overseas.

At best, innovation boxes will give tax breaks on profits from research that has long since been done. At worst, they create a new way for companies to dodge taxes by pretending that most of their income comes from intellectual property.

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Local businesses in Massachusetts don't play these tax shell games to dodge taxes, they are paying what they owe. Everyone should play by the same rules.

Even the Heritage Foundation, a conservative think tank, thinks the innovation box is a bad idea. "It is unfair to force those businesses left out of the box to pay an uncompetitive amount of tax while allowing businesses that happen to be in a congressionally favored industry to enjoy the benefits of lower taxes," wrote Curtis Dubay, a tax research fellow. "All business income should be taxed at the same rate."

Same rules for all

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Frankly, I just don't understand why Rep. Neal thinks we need new loopholes in the tax code.

Congress should be in the business of making sure that everyone plays by the same rules. We need laws that will close the loopholes that let these big companies to avoid paying their taxes so we can invest in an economy that works for everyone.

I hope Rep. Neal will reconsider his support.

Nathan Proctor is state director of Massachusetts Fair Share.