Companies Guard Tax Loopholes, Stalling Tax Cuts

As President Obama considers lowering the corporate tax rate, an impediment to reform is the corporations who, in theory, stand to benefit. In short, corporate America, can't decide which highly lucrative tax loophole it should fight to keep.

To reduce the 35 percent corporate rate, the Financial Times reports, companies would have to give up any number of the provisions that currently allow them to engineer their own tax breaks -- by, for example, deferring profits on overseas income, recording profits in low-tax countries or getting tax breaks for research. The trouble is, they can't agree on which perks they want to give up, and, the FT reports, the divisions could stall reform.

Ralph Hellman, a senior vice president at the lobbying agency Information Technology Industry Council, told the FT that some companies are also worried about a bait and switch: If they fork over a a current tax provision, they fear, the president might fail to uphold his side of the deal.

Some of these current provisions can be quite lucrative. Google, for instance, as Bloomberg reported last week, funnels much of its overseas profit through Ireland and the Netherlands to Bermuda. The complicated strategy, whose components are called the "Dutch Sandwich" and the "Double Irish," has effectively cut Google's overseas tax rate to just 2.4 percent, saving it about $3.1 billion over the last three years.

Other technology companies, like Microsoft, use similar strategies. If the president were to increase corporate taxes, Microsoft threatened last year, it would retaliate by shipping not just profits but also employees overseas.

The U.S. budget deficit, meanwhile, is about $1.3 trillion.

The president's attempts to offer corporate tax breaks have, in recent months, been largely spurned by corporations. When he unveiled the part of his new stimulus plan (of course, the administration doesn't use that word) that would give companies tax breaks for buying equipment and doing research, those companies said no thanks -- they'd rather he preserve the Bush-era tax cuts for wealthy individuals.