Over five years, foreign profits held overseas by U.S. corporations nearly doubled as companies avoided taxes back home.
In the last year alone, U.S. corporations added at least $206 billion to the total, or 11.8% year-to-year. Leading the pack are many of the biggest names in technology, including Apple, IBM and Microsoft.
Image courtesy of Bloomberg Businessweek.
At the heart of the problem is the difference between corporate tax rates between nations.
While the U.S. corporate tax rate runs as high as 35%, tax rates in countries like Bermuda, Ireland, Luxembourg, the Netherlands and Switzerland are much lower.
Amongst these five foreign nations, multinational corporations reported earning 43% of their profits. This figure is more than five times the share of workers and investments they have in those nations, according to the Congressional Research Service.
The annual tax revenue loss in the U.S. from the loophole in the tax code allowing foreign profits to remain tax-free as long as the money remains offshore is estimated at $30 to $90 billion.
This money could be a boon to the U.S., if it was utilized in the domestic economy. Unfortunately, political efforts have been woefully inadequate and contentious.
For years, Congress has feuded over exactly how to address this ever-growing pile of corporate cash. Proposals have included a one-time tax holiday, lowering the overall corporate tax rate, or completely scrapping the rule allowing offshore profits to avoid taxation.
The debate inevitably touches on the loopholes built into the tax code as well, making any attempt to address offshore profit taxation a convoluted, partisan debacle.
As long as the political parties are unable to find consensus or agree on limitations on tax issues that will be addressed by an overhaul of the tax code, the situation is bound to persist and offshore cash will continue to amass to mind-boggling sums.
