From George Zornick at THE Nation:
According to [POLITICO’s] Mike Allen’s “Playbook”—a daily memo of DC conventional wisdom—the biggest story of the day involves remarks by the CEO of Coca-Cola about the horrid US tax structure. Muhtar Kent says [at the Clinton Global Initiative] that his company finds it easier to do business with China and Brazil than the United States because of our antiquated and unfair tax code […]
Allen breaks his supposed journalistic objectivity for a moment, and dubs this plea for lower corporate tax rates a “chilling story” that will “drive debate for ’12 and SuperCommittee.” He adds that “This is a massive wakeup call for official Washington…. The Coke dude’s sentiments, which we hear CONSTANTLY and CONSISTENTLY from executives around the country, explain why an independent presidential candidate could have historic support, and why big money is panting after New Jersey Gov. Chris Christie.” (Emphasis is his).
Indeed, Republicans are already seizing on Kent’s comments. Virginia Governor Bob McDonnell, who is rumored to be on many a vice-presidential short list, said today that he was “staggered” by Kent’s comments, and echoing Allen, said it should be a “wakeup call” to Washington.
This is shaping up to be a major talking point for lowering corporate tax burdens, akin to the Democrats’ promotion of Warren Buffett’s pro-tax position. So it’s very important to get this straight: in virtually every way, it’s ludicrous to listen to what the CEO of Coca-Cola has to say about federal taxes.
For one thing, Coca-Cola enjoys very low federal taxes, and pays a lower rate than most Americans. According to Citizens for Tax Justice, the company’s current federal tax expense is $470 million, which is only 6.5 percent of the $7.2 billion in pre-tax profits that Coca-Cola reported last year. That’s a pretty rosy rate, and certainly does call for a retooling of the tax code—though not in the way Muhtar Kent wants. (The company told CTJ they actually paid at a 38 percent rate, but would not release any documentation).
Part of the reason that Coca-Cola pays such a low rate is that it parks profits in overseas tax havens like the Cayman Islands. The company has saved $500 billion in some years by hiding profits there.
In 2004, big business got Congress to approve a repatriation holiday in which overseas profits could be brought back and taxed at a 5.25 percent taxation instead of 35 percent. It was sold as a jobs-creating measure: companies would bring back a lot of overseas money, which would spur investment here and jobs here.
A lot of overseas profits came back, but unfortunately—yet predictably—the jobs never materialized. The Congressional Research Service later found “little evidence exists that new investment was spurred.” In fact, a comprehensive study found that 92 percent of the money that was brought back was used to enrich shareholders and executives.
Moreover, many of the companies that participated in the repatriation ended up laying off workers in the following months and years. On top of that, many of these companies—including Coca-Cola—now have much more money parked overseas than they did before the repatriation holiday.
So, what Muhtar Kent is really saying: though his highly profitable company’s already-low federal tax rate is abetted by hiding profits overseas, he’d like to bring back those profits at an outrageously low rate so that his company can get even richer. Otherwise they’ll keep the money in China, or Brazil, or wherever. That’s fine for Kent—it will certainly help his shareholders, which is his only true motivation. Just don’t tell Mike Allen.
From Steve Kornacki at Salon:
Complaints like Kent’s are probably better addressed with a healthy dose of skepticism and critical thought. Let’s face it, business executives almost always believe their taxes, whether corporate or personal, are too high. This is true whether the economy is weak or strong. I have no doubt that Allen hears complaints about corporate tax rates from executives all the time. But that doesn’t automatically mean they’re valid.
I’m reminded of the summer of 1993, when Bill Clinton pushed through a deficit-fighting plan that raised taxes on the top 1.8 percent of income earners. The country was just emerging from a painful recession, and business leaders screamed that Clinton was flirting with disaster. As Clinton’s plan made its way through Congress, a survey from the National Federation of Independent Business found that small business owners’ confidence in the economy was crashing — a fact that congressional Republicans, who universally opposed Clinton’s plan, made much of. But the plan passed anyway and it ended up having none of the horrific consequences that opponents had forecast.
When it comes to Kent’s specific claims, it’s probably worth keeping in mind that corporate taxes actually account for a fraction of the share of federal revenue and GDP that they comprised back in the 1950s. And while China may offer some inducements to business that the U.S. doesn’t, there are trade-offs. As Kris Broughton explains:
Every CEO in the country needs to remove the word “uncertainty” from their vocabulary. It is a non-specific word that might mean anything, in the way that the word “discomfort” could describe the kind of pain you feel when you have a cramp in your leg or the kind of pain you feel when you have a broken neck. In CEO speak, “uncertainty” is a word that is usually delivered in an ominous tone when they are being interviewed, because we all know that CEO’s are being paid millions of dollars a year to assemble successful business strategies as simply and easily as kids snap together Legos.
The point here isn’t that CEOs who say they or their companies are taxed too much should automatically be ignored. It’s just that they shouldn’t be afforded an exalted status in America’s political debate. They have their own interests and their own blind spots, just like everyone else — and that’s the way they need to be treated.