Corporations pay less tax. More thoughts on where the money is.

It’s election time in the US and folks that bother to vote at all will be trying to figure out which candidate will do the least amount of damage to our living standards. There will be all sorts of ballot measures intended to extract more money in one way or another from the pockets of workers and the middle class.

Politicians and Union officials alike tell us there is no money and we all have to sacrifice. As Jerry Brown constantly reminds us in his campaign against his Republican opponent, “we have to learn to live within our means”. We have to alter our thinking he says, “We are Californians first”. There are no classes, there is no exploitation.

As we prepare for reduced living standards after November 2nd no matter who we vote for, we should consider, as we have on this blog many times, other sources of funding. Poor old Goldman Sachs might no be able to help as it is having a little bit of a slower year. The firm has set aside $13.1 billion dollars for compensation and benefits for the first nine months of this year. That’s a 14% decline but still sufficient to give each of its 35,400 employees $370,706 “for nine months of work” says Business Week.

Maybe we can save a school or hospital somewhere if we look a little harder. Oh, wait. What’s this about Google. It appears Google has made $11.1 billion since 2007 but paid a mere 2.4% in taxes. Its Dublin office was responsible for 88% of its $12.5 billion in sales outside the US Business Week tells us but that money, “went to the tax haven of Bermuda”*. How can Google pay a 2.4% tax rate considering it operates in many countries with a 20 or 28 percent tax rate?

It moves it’s money to Bermuda where there is no corporate tax at all. Business Week tells us Google does this by having its profits travel to Bermuda via what tax lawyers call the “Double Irish” and "Dutch Sandwich” route.

When Google takes in money through selling ads in Africa, Asia or somewhere else around the world, it sends that money back to its Dublin office. The corporate tax rate in Ireland is 12.5% but Google gets round most of that by shifting the money right quickly from Dublin. So, as Business Week explains, the Dublin office reports a “pre-tax profit of less than 1% of revenues”. Hmm, not bad.

BW explains that Irish law forbids Google to send that money directly to the white sands of Bermuda where it can wallow in tax free waters without a huge tax hit. So what does Goggle do about that? It’s easy. Ireland doesn’t tax certain payments made to companies in the EU. So Google sends the money to its office in the Netherlands which has very “generous” tax laws. BW describes the Netherlands office as a “shell” as it has no employees. It must have one I would think as that money sent from Dublin is passed on to Bermuda. Oh, bye the way, Google’s subsidiary in Bermuda is technically an Irish company. This is why the circuitous route is called the Double Irish.

This practice is not exclusive to Google but is routine for the global corporations. After all, says one person, “a company’s obligation to its shareholders is to try to minimize its taxes at all costs, but to do so legally.” It’s comforting that these folks are so law abiding. They are very fortunate also as laws are made by their political representatives so if the law hinders their profit taking they can change it easily.

Google’s Dublin office operates under license from Google Mountain View so it attributes these profits to to its “Irish operations instead of the US”.

Google, like many companies shifts some of its profits overseas through a procedure known as “Transfer Pricing”. Business Week points out that many global businesses do this, especially technology and pharmaceutical companies. In the aftermath of the crash, the US Congress has attempted to change the rules that allow these massive transfers of profits but the bribery machine kicked in and that’s stalled. One academic estimates that the US government loses $60 billion due to these profit transfers.

The fact that it’s news at all is the amount of money that the US government is losing out on in the form of taxes. We wrote on this blog of this concern regarding the wealth of private individuals that was also being sheltered from taxation in offshore accounts, some $11 trillion. There is also a certain national anger at this “unpatriotic” behavior as much of the research that developed Google’s technology was done at Stanford and funded by the National Science Foundation.

“These companies are getting away with murder”, says prof. Reuven S Avi-Yonah, at the University of Michigan. They’re getting away with murder in Iraq and Afghanistan too so it comes as no surprise.

I remember once being told by a boss at work that the first amendment of the US constitution (the right to free speech) does not apply in the workplace. In a capitalist economy, many rights you have in society as a whole do not apply during the period we call work, when our life activity is owned and conducted by those who bought it and its use for a period of time.

This small example of the massive wealth that exists in society and how it is hidden, shows us that the capitalists’ propaganda about the lack of money in society is just that, propaganda. When their politicians, their mouthpieces in academia and co-thinkers in the Labor movement tell us we have to tighten our belts, that we all have to sacrifice together, we can recognize it as the nonsense that it is.

So when we are mulling around in our minds what to do lets start form the position that there is no shortage of capital and Labor. That there is massive wealth in society created by that Labor. And that the capitalist class are liars, thieves and murderers.

We’d be off to a good start then.

*Business Week 10-25-10