by Will Ashworth | April 3, 2014 12:40 pm
Caterpillar (CAT[1]) shareholders must feel awfully proud having put one over on America. The tax scheme it’s put together through its Swiss subsidiary is a thing of beauty, saving $2.4 billion in corporate taxes over a 12-year period.
Houdini couldn’t have come up with a better escape.
The problem isn’t so much that Caterpillar is getting away with what amounts to grand larceny[2], but that a whole host of American-based corporations are doing exactly the same thing.
Take Apple (AAPL[3]). Last year, the Senate Permanent Investigations Subcommittee’s report[4] on the Cupertino company found that it had saved $10 billion in taxes each year over the precious four years through corporate tax avoidance loopholes.
And that’s money that didn’t go to the American people.
That’s right — you, a part owner of the United States of America, have been shortchanged in a big way, and it’s affecting everyone across the country, rich or poor. It’s a travesty[5] that has to stop.
Senators like Rand Paul can blame the convoluted tax code for this mess, but that doesn’t get to the heart of the matter — which is that large American multinationals feel as though they are special, deserving of a free pass for their huge contribution to the American way of life.
Not Everyone Wins
Corporate tax avoidance tactics by firms like Caterpillar might save billions for shareholders but that rarely trickles down to the average guy or gal on the street. Only about half of Americans own stock[6], whether it be through a retirement account like a 401(k) or directly in an investment account at Charles Schwab (SCHW[7]) or some other discount broker. Of those people a select few control most of these assets. According to Fidelity half of its 401(k) accounts have less than $25,600.
The top 1% benefit most from a system that is clearly stacked in their favor.
The wealthiest in this country, many of whom are directors and officers of S&P 500 companies, are busy devising schemes like Caterpillar’s to reduce the amount of corporate tax it pays, which then flows to the bottom line in the form of earnings. CEOs, executive officers and directors then wisely create performance-based compensation systems that are driven by ever-higher earnings per share. If tax avoidance isn’t enough, these corporations then borrow money (they can’t repatriate overseas cash without paying tax) to repurchase shares … which once again increases EPS, putting even more money in the hands of the 1% while the rest of us can barely afford to pay our mortgage and eke out an existence.
I love writing about business. I find it fascinating. However, it always disheartens me when corporations like Caterpillar feel the need to take more than their fair share. Rather than figuring out how to do more with American worker, they do less. They choose to make products in places where human rights are an afterthought. Even worse, they pay less tax as a result, reducing America’s ability to keep its infrastructure in good working condition.
It reminds me of the movie American President in which Michael Douglas’ character (President Andrew Shepherd) says, “America isn’t easy. America is advanced citizenship. You gotta want it bad, ‘cause it’s gonna put up a fight.”
Well, everything about this kind of tax avoidance is bad for the country — whether you’re young or old, black or white, Republican or Democrat — yet America seems unable to put up a fight.
Take back your country. Don’t allow these corporations to thumb their noses at America. Sure, the tax code’s a joke but that shouldn’t stop you from righting wrongs. Caterpillar’s corporate tax dodge, like so many others, is just plain wrong. It hurts all Americans … and that’s never a good thing.
So what do we do about it?
Job Creation
Give U.S. companies an incentive to invest in the U.S., and see what happens.
Caterpillar generates 61% of its $56 billion in annual revenue outside North America, employing 66,624 people (56% of its workforce) outside the U.S. That hardly makes it American. Perhaps a designation should be applied to companies that employ a majority (at least 75%) of their workers in the U.S. — a tax benefit would be created that allows qualifying corporations to pay a corporate tax rate of 25%, 10 percentage points lower than the regular rate. Should the federal government see fit to lower the corporate tax rate to 25%, the “American” rate would lower to 15% and so on.
While many of these truly “American” firms will still generate significant revenue — and possibly pay lower taxes as a result — outside the US, at least they’ll play a bigger part in creating jobs here in the U.S. that leads to a viable middle class.
Something Caterpillar and others of the same ilk clearly aren’t.
Home Depot (HD[8]) employs 365,000 people in the US, Canada and Mexico. Approximately 89% of those employees work in the U.S. Under this benefit, HD would qualify for the special federal statutory rate of 25%, saving the company almost $850 million in 2013 alone. If HD reinvested the savings into new jobs it would be able to create almost 20,000 based on the U.S. per capita personal income[9] of $42,693 in 2012. That’s 16% of the average number of jobs (129,000) created on a monthly basis between December and February. Multiply that by 500 stocks in the S&P 500 and you’re talking about full employment.
Pipe dream? Maybe … but the alternative in place now is a drain on American resources. It’s time to give something else a try.
As of this writing, Will Ashworth did not own a position in any of the aforementioned securities.
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