The Paradise Papers Make the Republican Tax Plan Look Insane

Anyone who's breathed air in the past 40 years understands that rich people and big corporations will do pretty much anything to avoid paying taxes. They hire sharp accountants, exploit loopholes, and use special tax havens to shield their money. In that sense, one could argue we didn't exactly need the release of the Paradise Papers—the latest cache of internal documents detailing the who, where, and how of the global elite's tax avoidance—to bolster our well-founded suspicions.

But the disclosure couldn't have come at a better time. Incredibly, America is embarking on a tax rewrite that could benefit many of the same people and entities exposed in the Paradise Papers. Properly understood, what congressional Republicans and the White House are trying to do borders on obscene. They effectively plan to reward congenital tax evaders—not only with lower taxes, but with additional tools to keep their wealth out of reach.

The Paradise Papers—primarily records leaked from a Bermuda law firm named Appleby that specializes in hooking up the wealthy with tax shelters—revealed a web of investments and schemes that make it easier to hoard cash without paying taxes. Those implicated include the lead fundraiser for Canadian prime minister Justin Trudeau, key advisers to President Trump like US commerce secretary Wilbur Ross, and the Queen of England. The leak also provided evidence of how corporations like Apple and Nike take advantage of offshore tax havens to conceal earnings.

Tax haven accounts are usually untraceable, making it impossible for governments to track down what they're legally owed. The result deepens wealth inequality, because only the upper class can so easily avoid the law—it's not like the sales clerk at Target has the ability to hide her income offshore.

Appleby has responded by arguing that all its services are lawful, and that's probably correct. The real issue with tax avoidance is how legal loopholes in global tax systems can be bent to the advantage of the elite. And those lucky souls have a willing partner in congressional Republicans.

For example, according to an analysis by the Center on Budget and Policy Priorities (CBPP), households earning over $1 million a year are the overwhelming winners in the current iteration of the GOP tax bill. In fact, their after-tax incomes are set to increase 16 times more than those making under $50,000, and nearly half the tax cuts would go to people making a half-million dollars or more, the analysis found.

These are exactly the kinds of people who use offshore accounts. Under the GOP plan, they would also get to reclassify themselves as corporations to take advantage of "pass-through" income at a reduced tax rate. And they would benefit from the eventual repeal of the estate tax, allowing them to pass wealth on to heirs without paying taxes on the remaining assets.

Corporations get a huge gift in the GOP bill too, with the nominal corporate tax rate dropping from 35 percent to 20 percent. But what US corporations pay in taxes doesn't include the estimated two-thirds of corporate income held in offshore tax havens. Republicans want to give companies hiding a supermajority of their money another nearly 50 percent reduction on what they bother to show the government.

But it's even worse than that. Under the proposal, the United States would shift to a "territorial" tax system. Instead of corporations registered in the US paying tax on all overseas profits, they would only be taxed in the country where money is earned. This may sound reasonable, but it creates serious incentives to creatively shift profits into low-tax countries.

That's exactly what Apple, a legendary tax evader, is accused of doing in the Paradise Papers. After being pressured by US authorities on shifting assets like patents and trademarks to low-tax Irish "ghost companies," Apple parked profits in Jersey, a small island in the English Channel that doesn't charge corporate tax.

Apple currently holds $236 billion offshore, according to the New York Times, part of an estimated $2.6 trillion in foreign profits stashed abroad by US corporations. Under the current system, money that isn't "repatriated" into America can legally avoid taxation. To switch to the territorial system, the GOP tax bill deems those funds repatriated, but charges a skinny 12 percent tax on profits held in cash, and just 5 percent on invested profits (most corporate earnings are invested; corporations don't commonly stick cash in drawers). This would save corporations $500 billion, according to the Financial Accountability and Corporate Transparency Coalition. And corporations have eight years to bring the money over, dragging out the time available to shelter income.

The GOP bill does claim to crack down on offshoring with an "excess profits" tax on tax havens. But that only comes into play on half the profits gained overseas. One example is a multinational making $10 million in Ireland on "hard" (i.e. physical) investments that would generate a tax bill of just $100,000, guaranteeing a lot of untaxed overseas profits.

In theory, taxes on "soft" overseas assets like patents and trademarks, which yield massive earnings without much expenditure, would be higher under the Republican plan. But the Paradise Papers details how shell companies can create layers between corporations and their earnings specifically to avoid taxation. And the higher tax on soft or intangible profits, like on patents, creates incentives to move hard or tangible profits abroad, like through outsourcing jobs into factories in low-tax countries. Finally, key industries like banks and oil and gas companies are exempt from this excess profits tax—they won't have to pay anything on offshore earnings.

For this and so many other reasons, Democrats and their allies have been trying to halt the tax overhaul. "Instead of passing a huge tax giveaway for yacht-owning island-hoppers, Congress should launch a major investigation into how corporations and the wealthy use offshore loopholes to dodge taxes," Frank Clemente, executive director of Americans for Tax Fairness, said in a statement.

But Republicans are certain to plow ahead. It defies explanation for any government to react to new details about systemic advantages for the rich and powerful by cutting taxes on the rich and powerful. But that hasn't ever stopped America before.

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