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Corporate Tax Breaks: How Congress Rigs the Rules

This week, the House Ways and Means Committee is poised to demonstrate exactly how the rules are rigged.

“The game is rigged and the American people know that. They get it right down to their toes.”

— Senator Elizabeth Warren

This week, the House Ways and Means Committee is poised to demonstrate exactly how the rules are rigged. On Tuesday, the committee will begin to mark up a series of corporate tax breaks – known as “extenders” because they have been extended regularly every year or two for over a decade. Only now the committee plans to make many of them permanent, at the cost of an estimated $300 billion over 10 years. And it does not plan to pay for them by closing other corporate loopholes or raising rates. The giveaway – almost all of which goes to corporations – will simply add to the deficit, no doubt fueling the later demands of those who vote for them for deeper cuts in programs for the vulnerable in order to bring “spending” under control.

The tax measures range from big to small, sensible to inane. Two centerpieces are glaring loopholes for multinational companies and banks, encouraging them to ship jobs and report profits abroad to avoid an estimated $80 billion in taxes over a decade.

Call them – one known as the “active finance exception” and the other as the “CFC look-through rule” – the General Electric tax dodges. The loopholes allow multinationals with huge finance arms, like General Electric or Wall Street banks, to dodge paying their fair share of taxes simply by claiming that U.S. based financial income is being generated offshore. These “exceptions” are central to how GE managed to declare a profit of more than $27 billion over the past five years, while not only paying nothing in taxes, but pocketing tax refunds of more than $3 billion. The multibillion-dollar multinational pays less in taxes than any mom and pop store that turned a profit. These breaks don’t pass the smell test.

Making these permanent without offsetting them by closing other loopholes is a brazen insult to American voters. Republicans have railed incessantly about deficits, forcing austerity budgets that have impeded the recovery and cost jobs. They have even refused to pass emergency unemployment compensation for long-term unemployed workers unless it was “paid for” by cuts elsewhere. (And even after the Senate passed the measure with “pay-fors,” Republican House Speaker John Boehner still refuses to allow it to come to a vote.)

Emergency unemployment compensation is temporary, targeted and timely. It goes to sustain the families of unemployed workers who are still looking for work. It is of limited duration. And the families that receive it spend it immediately on food, rent, gas – helping to boost jobs and the economy. And that can’t get a vote on the floor of the House.

The offshore tax dodges that the committee is about to mark up and bring to a vote will be permanent. They aren’t emergency measures. They are targeted perversely to benefit the biggest corporations and banks the most. And they will cost jobs rather than help generate them.

But in a Congress supposedly locked in hapless partisan gridlock, these bills are greased to go. They are backed by a full-court press from the corporate lobbies. They gain bipartisan support by pairing the obscene with “side of the angels measures” – a deduction for schoolteachers who pay for supplies out of their own pockets, a tax break for employees that ride mass transit to work, a tax relief for families taking a loss from selling a home with an underwater mortgage, a production tax credit for renewable energy.

This is the routine way the rules get rigged, the powerful get the gold and the workers get the shaft. But perhaps this time business as usual may bear a price. Warren is right: Americans are increasingly onto the game. As polling for Americans for Tax Fairness has shown, voters are outraged that corporations and the wealthy aren’t paying their fair share of taxes. They are incensed at the notion that Congress is giving multinationals incentives to ship jobs or report profits abroad. Or that Wall Street banks are paying lower tax rates than small businesses.

Even the perpetually tanned House Speaker John Boehner will blanche at trying to explain how unemployed workers can’t be helped but multinationals need permanent loopholes to stash their earnings abroad. Even the glib Republican budget chair Rep. Paul Ryan will find it hard to justify deeper cuts that boot kids out of Head Start or cut Pell grants for college in order to make up for deficits produced by rewarding GE for stashing profits in the Cayman Islands.

This is an election year with voters in a surly mood. Embattled incumbents might be wise to think twice before bowing to the dictates of the corporate lobbies. Surely challengers in both parties should relish going after legislators who voted to carve a permanent loophole for multinationals that ship jobs abroad, while cutting investments in education and abandoning workers struggling to find a job.

Washington is a city wired for the insider’s deal to fix the game. And the rules will keep getting rigged until voters sort out who is on their side and who isn’t – and throw some of the latter out of office.

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