By Sen. Carl Levin
In March, the Senate passed a budget resolution. This blueprint for the fiscal year that begins in October represents an important step forward on an issue of great significance to American taxpayers: the need for balanced deficit reduction.
An important part of balanced deficit reduction is reducing the deficit without severely damaging important protections for and investments in American families. One way to do that is by ending unjustified tax loopholes and ending the damage they have inflicted on our budget. The budget summary released by Sen. Patty Murray of Washington, the chairman of the Senate Budget Committee, decried “the sheer magnitude of the revenue lost to off-shore tax abuse, wasteful and inefficient loopholes, and other business tax breaks.”
For many years as chairman of the Permanent Subcommittee on Investigations I have focused on the maze of offshore schemes and complex gimmicks that are concocted to allow a privileged few to avoid paying the taxes that they owe. Our subcommittee has, on a bipartisan basis, filled volume after volume with damning detail on how these schemes work and the damage they cause.
Now we are at a moment in history when we can remove this blight. The pressures on the federal budget and the threat to economic growth and prosperity that they represent require action. We must close these loopholes. The relentless arithmetic of our budget situation compels it; fairness and justice demand it.
During the budget debate, a number of senators joined me on the Senate floor to speak about the need to close tax loopholes. We outlined the preposterous contortions that too many corporations and wealthy individuals employ to avoid paying taxes, and how those contortions contribute to a shift in the tax burden from corporations and the wealthy to middle-class families and small businesses.
The case for additional revenue and for closing tax loopholes as a source of that revenue is overwhelming. Serious deficit reduction requires more revenue, as everyone from the Simpson-Bowles Commission to the Domenici-Rivlin task force to the Concord Coalition to Fix the Debt, has recognized. Federal revenue remains significantly below its historic average as a percentage of the gross domestic product of our economy, and that revenue is, and under current trends will continue to be, below the levels we have needed in the recent past to balance the budget.
In particular, the loss of corporate tax revenues is an ongoing cause of deficits. In 2006, corporate tax revenue made up about 15 percent of all federal revenue. In 2012, it had fallen to 10 percent. Somebody has to pick up the slack. In this case it has been average American families.
Why is corporate revenue a shrinking share of our Treasury even though the U.S. corporate tax rate, at 35 percent, is one of the highest in the developed world? It is because the top tax rate doesn’t tell the story. While our tax rate at the upper limit is 35 percent on corporations, the average U.S. corporate taxpayer’s effective tax rate was just 12 percent in 2011, which is the lowest in generations.
A recent study by two think tanks found that 30 of our largest corporations with combined profits of more $160 billion paid no income tax, zero, from 2008 to 2010.
The Permanent Subcommittee on Investigations outlined in a report last year how three U.S. companies—Apple, Google, and Microsoft—used offshore gimmicks to avoid taxes on almost $80 billion in profits.
But momentum is building to stop these abuses. Earlier this year, Sen. Sheldon Whitehouse of Rhode Island joined me in introducing the Cut Unjustified Tax Loopholes Act. Our bill would help address some of these tax schemes and others as well. It is a powerful weapon in our deficit-reduction arsenal if we will use it.
During the budget debate, Sen. Whitehouse and I were joined by Sen. John McCain of Arizona in introducing a bipartisan amendment recognizing the need to close corporate tax loopholes. The Senate approved our amendment, putting the Senate on the record on the need to end offshore tax abuses by large corporations.
We can’t afford these loopholes. We can’t afford the budget deficits they help cause, and we can’t afford the damage they do to ordinary families and small businesses. I’ll keep working to strengthen the momentum for reforms that end these abuses.
Carl Levin is the senior U.S. senator from Michigan.