Monday, May 02, 2011

The Tax Foundation skews the facts again

The Tax Foundation, an anti-tax group in the U.S., recently issued a report exclaiming how much money U.S. corporations are paying on their foreign income (with the subtext that everyone should stop carping about tax avoidance and the like.) They came up with a 25% effective foreign tax rate on their foreign income, which demonstrates that US firms are not "avoiding" taxes on their foreign earnings.

The response from Edward Kleinbard of the University of Southern California, courtesy of TaxProf, was withering. First, the Tax Foundation only used data on repatriated income - the income that actually gets taxed. And, as TJN has blogged repeatedly in the past, U.S. corporations have a whole lot of money - $1 trillion or so - sitting out there, offshore and unrepatriated.
"It tells us nothing about the effective foreign tax rate imposed on the unrepatriated incomes of foreign subsidiaries, and, as described below, it reflects the application of tax planning, including the deliberate creation of pools of high-tax income that are repatriated to shelter other income, through cross crediting. But the actual debate is whether income that under current law is unrepatriated should now be allowed to be brought home without further US tax?
The Tax Foundation is asking exactly the wrong questions. He cites four other fundamental reasons why the Tax Foundation's data is wrong.

And he looks to a better data source to reveal that
"The effective foreign tax rate paid by foreign subsidiaries of US MNEs in 2006 is in the neighborhood of 16.4%, not the 25% figure reported by the Tax Foundation."
More misinformation, thankfully checked this time.


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