The Sanders Corporate Tax Reform Plan

In the recent post, "How The Clinton and Sanders Infrastructure Plans Measure Up," I mistakenly wrote that candidate Bernie Sanders does not yet have a corporate tax proposal:

Clinton’s infrastructure plan says only that it will be paid for through “business tax reform.” It does not detail the nature of the reforms that would pay for this spending. Similarly, Sanders does not yet have a specific individual and corporate tax proposal, but he has proposed a financial transaction tax and says he will close loopholes.

Oops. It turns out that Sanders does have a detailed corporate tax plan to pay for his infrastructure plan. He introduced the plan as a Senate bill shortly before announcing his run for the Democratic nomination for President. It is called the Corporate Tax Dodging Prevention Act. So let's take a look at it.

Elizabeth Warren's Principles For Corporate Tax Reform

First, though, that infrastructure post references Elizabeth Warren's speech in which she laid out some criteria for evaluating the candidates' plans. Summarizing:

1) Increase the share of revenue that corporations pay. ... any “revenue neutral” plan leaves the country with too little money to fund basic services.

2) Level the playing field between small and big businesses. The business tax code is rigged against small businesses, making it harder for them to compete.

3) Promote investment and jobs in the U.S. Lower tax rates and loopholes for hiding profits overseas encourages more outsourcing of jobs and investment.

Also, there is the question of how the candidates treat the huge stash -- more than $2.1 trillion -- of corporate profits being hoarded in tax havens. Do they propose that these corporations pay the taxes they owe? Or do they offer these companies cash reward for having dodged taxes, if only they would please let We the People have some of the revenue we are owed?

Sanders' "Corporate Tax Dodging Prevention Act"

Senator Bernie Sanders Corporate Tax Dodging Prevention Act is summarized in an April 14 Senate Budget Committee blog post, (Sanders is the ranking member of that committee.)

1) Ending the rule allowing American corporations to defer paying federal income taxes on profits of their offshore subsidiaries.

This would immediately bring in up to $620 billion of federal tax revenue currently owed on "offshore" profits but deferred. (It would also make available in the US more than $2 trillion of corporate profits that have been kept offshore, which could be reinvested or distributed to shareholders.)

Additionally, this would increase federal tax revenue by as much as $90+ billion each year thereafter.

These amounts are based on a report from Citizens for Tax Justice (CTJ) and the U.S. PIRG Education Fund, titled "Offshore Shell Games."

A second look at the amounts owed by these companies , detailed in a letter to Congress titled, 24 International Tax Experts Address Current Tax Reform Efforts in Congress sets the amount this would bring in at " about $900 billion over 10 years."

2) Closing loopholes allowing American corporations to artificially inflate or accelerate their foreign tax credits.

A current loophole allows corporations to claim foreign tax credits for taxes paid on foreign income even if that income is not subject to current U.S. tax. This closes that loophole.

3) Preventing American corporations from claiming to be foreign by using a tax-haven post office box as their address.

This would stop American corporations from avoiding U.S. taxes by claiming to be a foreign company because they have a post office box in a tax haven country. Sanders' bill says a corporation could not claim to be from another country if their management and control operations are primarily located in the U.S. (See last month's post, "Pfizer Buying Allergan So It Can Pretend To Be Irish In Tax Scam." The resulting company would still be based in NY/NJ.)

4) Preventing American corporations from avoiding U.S. taxes by "inverting."

In an inversion, an American corporation acquires or merges with a (usually much smaller) foreign company and then claims that the newly merged company is a foreign one for tax purposes — even though the majority of the ownership is unchanged and little or no personnel or operations have actually moved offshore.

Under Sanders' bill the U.S. would continue to tax such a company as an American corporation so long as it is still majority owned by the owners of the American party to the merger or acquisition.

5) Prevent foreign-owned corporations from stripping earnings out of the U.S. by manipulating debt expenses.

This stops multinational corporations from loading up their U.S.-based corporation with debt to companies they own outside of the US as a way to shift profits out of the U.S. company. They make interest payments to the foreign companies, deduct it, and this reduces or wipes out their U.S. income for tax purposes.

6) Preventing large oil companies from disguising royalty payments to foreign governments as foreign taxes.

U.S. oil and gas companies have been disguising royalty payments to foreign governments as foreign taxes in order to claim foreign tax credits. Sanders' bill would stop this.

Does Sanders' Plan Pay For His Infrastructure Proposal?

Sanders has proposed a detailed plan for addressing the country's infrastructure needs, with an investment of $1 trillion. His plan to close several corporate tax loopholes appears to raise the necessary funds to cover this. Ending deferral alone would bring in $620 billion, and another $90+ billion each year following. This would raise the necessary funds.

On top of this the Senate's Joint Committee on Taxation took a look at Sanders' bill and a "partial score" concluded that items 2-6 would bring in an additional $133 billion.

The Washington Post fact checker looked at Sanders' plan to fund infrastructure by closing these corporate tax loopholes and concluded that "What matters most is that Sanders’s claim of raising $1 trillion is at least credible — assuming the money is not also earmarked for other spending projects."

Does Sanders' Plan Measure Up To Warren's Principles?

● Sanders' plan closes loopholes and raises substantial revenue for use by We the People. It meets Warren's principle #1.

● Sanders' plan end the advantage that multinational corporations gain over corporations that want to keep their production and profit centers in the US. It meets Warren's principle #2.

● Sanders' plan ends incentives to shift jobs jobs, production and profit centers out of the US. It meets Warren's principle #3.

● Finally Sanders' plan tells companies to bring profits back from tax havens to the US and pay all of the taxes due. It does not reward them in any way for having dodged taxes. It meets the requirement that companies not be offered a "repatriation" tax break.

So Sanders has indeed met all of the criteria in a detailed, specific way.

Candidate Hillary Clinton has proposed spending a modest $250 billion directly on infrastructure, and another $25 billion to establish a National Infrastructure Bank for loans to cities and states for infrastructure projects that would be repaid through user fees, etc.

Clinton has said this will be paid for through corporate tax reform, but has not yet provided a detailed plan. Will her plan meet Warren's three principles, as Sanders' does? Will it require tax-dodging companies to pay-in-full the taxes they owe on that huge overseas stash of profits? We will see.