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The think tank Citizens for Tax Justice (CTJ) today released a report showing that 280 of the most profitable companies in the US were able to shelter roughly half of their domestic profits from federal income taxes.  In fact, 30 of those companies — including North Carolina’s own Duke Energy — actually faced a negative federal income tax rate over the past three years.

The timing of CTJ’s report highlighting the ability of many profitable corporations to game the corporate tax code seems especially well-timed in light of what transpired yesterday at the General Assembly.

In a meeting of the General Assembly’s Revenue Laws Study Committee, a representative of the Council on State Taxation – a DC-based group representing the interests of more than 600 multi-state and multi-national corporations – encouraged lawmakers to make additional changes to tax  rules for multi-state corporations with operations in North Carolina.

Such changes, by potentially overturning assessments by the North Carolina Department of Revenue against companies the Department believes have artificially shifted profits earned here in North Carolina to states with no corporate income tax, could cost the state millions of dollars in one-time revenues. Read More

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A new report from the NC Budget and Tax Center finds that state and local taxes, by funding proven public investments and services, can be important tools for creating jobs both now and in the long term.

The evidence from credible economic research demonstrates that using state and local tax dollars for public investments in education, transportation, public safety, and health helps to create jobs and increase household income by reducing business costs and increasing worker productivity.

In the short term, especially in times such as now when such a large share of adults are out of work, mainstream economic theory and industry-standard economic modeling indicate that tax-financed services and investments often create jobs and spur economic growth: raising additional tax revenue is likely to put more money to work in a state’s economy. That’s because much of the additional tax revenue would otherwise have been saved or spent on imported goods and services that have little direct benefit for a local economy. Using additional tax revenue to hire teachers, first responders, nurses, and construction workers will put money directly to work back in the local economy.

In the long term, spending on upgrading and maintaining highways and railroads, educating children and training workers, and improving public health and safety makes the entire economy more productive. A recent survey of the literature by economist Jeffrey Thompson documented a considerable body of research showing that tax-financed investments in infrastructure, public education from preschool to higher education, and public health and safety can result in stronger local and regional economies. Read More

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In a recent op-ed, Duke Energy CEO Jim Rogers wrote that enacting a huge corporate tax break for multinational corporations, like that proposed by Senators Hagan and McCain, would enable his company to bring back $1.2 billion in profits currently held overseas to create jobs and “accelerate our capital program investments in smart grid technology, retire and replace older coal plants, and build natural gas and renewable generation.”

Duke Energy’s actions during the previous corporate tax amnesty in 2004 cast significant doubt on Roger’s claims.

According to a report by the Institute for Policy Studies (IPS), Duke Energy “repatriated” roughly $500 million in profits held overseas during the 2004 corporate tax amnesty.  Instead of using the influx of cash to invest and create jobs, Duke Energy responded by buying back $2.5 billion of its own stock.  Buying back its own stock did help push up Duke Energy’s share price from around $19-21 in early 2004 to $27-29 in mid-2005, but it didn’t result in more jobs.

In fact, IPS reports that Duke Energy’s global workforce actually fell by more than 10,000 jobs from 2004 to 2010, third-highest among the corporate members of the “WIN America” coalition.

With consumer demand — the real driver of job growth — much weaker now than in 2004-05, Americans should be even more skeptical that a second corporate tax amnesty in less than a decade would do anything to create jobs for anyone who’s not a corporate tax accountant.

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Ezra Klein had a great write-up yesterday on why, when one hears the term “repatriation holiday” to describe the proposal put forth by Senators Hagan and McCain, what one should be hearing is  “massive corporate-tax break that will have terrible long-term consequences.”

Independent economic studies of the 2004 tax amnesty for corporate profits parked overseas have shown it to be an abject failure that delivered none of the promised benefits.  What Klein does is put in simple terms why a second corporate tax amnesty would be even worse than the first:

But the real problem, they say, will come if we offer another holiday just six years after the first. If you keep offering these repatriation holidays, what begins to happen is that they’re not viewed as one-time offers but periodic sales. In that world, corporations will simply wait for a holiday before they bring income home. That means they stop bringing money home in non-holiday years, and so that money goes effectively untaxed.

As an analogy, imagine that individuals didn’t have to pay taxes in any given year, but only had to pay them eventually. And now imagine that every 10 years or so, Congress passed a massive tax cut for individuals who chose to pay taxes in that particular year. Everyone would just wait to pay taxes in those years, and the real tax rate in this country would plummet, even if we never cut taxes permanently. Read More

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A recent report (subscription required) by officials with KPMG LLP suggests that a subset of corporations and big accounting firms are likely working behind the scenes to encourage North Carolina lawmakers to absolve some multi-state corporations for past tax-shelter abuses.  The result, a new BTC Brief shows, would be to provide a windfall for a few corporations while inflicting major harm on North Carolina’s public investments.

In June, state lawmakers enacted House Bill (HB) 619, placing restrictions on the ability of the NC Secretary of Revenue to shut down abusive corporate tax shelters used by some large corporations to elude paying millions of dollars in taxes owed on profits earned in North Carolina. A recent report by officials with KPMG – a corporate accounting firm with a questionable history on abusive tax shelters – show that advocates of corporate tax dodging may wish to take the bill one step further by extending the new restrictions on tax-shelter abuse to past tax dodges as well.

Amending North Carolina’s new corporate tax rules to apply retroactively to prior tax years could put $400 million in paid and unpaid state corporate tax revenue at risk.

The resulting loss of revenue from such rules would be a job-killer for North Carolina, triggering even more harmful cuts to public schools, community colleges and universities, heath care, and other vital state-funded services that North Carolinians and businesses across the state depend on. Lawmakers must respond accordingly to protect the interests of everyday North Carolinians over big, multi-state corporations. Read More