Goldmark: Corporate tax loopholes meet their match

American business have hidden behind loopholes long enough. American business have hidden behind loopholes long enough. It's time for them to help get the country back on track. Photo Credit: iStock

advertisement | advertise on newsday

Peter Goldmark Peter Goldmark, former publisher of the International Herald

Peter Goldmark writes a weekly column for Newsday. He is former budget director of New York State and ...

Propose a tax increase and you lose -- that's been the axiom of American politics for a decade or more.

But as the nation wallows in the economic doldrums, the old idea that all tax increases are bad may be losing its grip.

Last year there was an initiative on the ballot in California called Proposition 39. In a nutshell, Prop 39 sought to close a huge tax loophole that had allowed several large corporations, including General Motors and International Paper, to get away with paying very low state sales taxes. Since the loophole was enacted in 2009, corporations in California had the choice of whether to figure their tax bill on the basis of sales, profits or employees. Companies that had most of their employees outside the state -- some of which had lobbied for this midnight addition to the tax law -- were happy as clams.

But they hadn't reckoned with Tom Steyer, a California businessman and philanthropist who took on what seemed like an impossible assignment: to close that loophole through a referendum and effectively increase the tax rate on some very big, very powerful companies. Steyer financed a statewide media campaign in support of Proposition 39, pointing out that some of the companies benefiting from the loophole had been recently bailed out by the federal government, and stressing that the law gave companies a reason not to locate jobs in California.

"Prop 39 was created to reverse a wrong from when the loophole was put into law in the middle of the night . . . and to provide substantial dividends to the taxpayers who have suffered, in the form of new jobs, better schools and a healthier environment," Steyer stated. And he also made it clear to the companies that if they mounted a big-bucks, old-fashioned, taxes-are-bad media campaign, that he would attack their chief executives personally for having benefited from the loophole at the cost of California's taxpayers.

Prop 39 won with almost a two-thirds majority. Californians may not resemble the American mainstream on some issues, but they have been consistently against any and all tax increases. So this shift is worth paying attention to.

In the past month we have read a lot about the various legal gimmicks U.S. corporations, such as Apple, employ to avoid paying taxes. A widespread practice for global corporations is to sell goods and services back and forth among their various divisions and have the profit appear -- surprise! -- in a country like Ireland with low tax rates, even if the products aren't made there. While American corporations like to complain about the high tax rate -- 35 percent on the books -- in 2011, the last year for which figures are available, they actually paid an average of 12.1 percent, the lowest rate since before World War I.

To get this country back on track, we're going to have to reduce our indebtedness, make thoughtful cutbacks in our expenditures -- and at the same time invest in jobs and growth, which requires revenue.

The corporate sector by and large is doing just fine. If we moved the effective federal tax rate on corporations up from that 12 percent to 20 percent, we'd handle 15 percent of our budget deficit in one stroke.

It's time for us to say to American business what Tom Steyer said to those companies in California: You've hidden behind the loopholes long enough. It's time for you to shoulder your fair share of the responsibility for generating public revenue in this country and help us get back on track.

Maybe Steyer is available to run a national campaign to accomplish that.

Peter Goldmark, a former budget director of New York State and former publisher of the International Herald Tribune, headed the climate program at the Environmental Defense Fund.

You also may be interested in: