NPR article and podcast highlights a perfectly legal mechanism for US corporations to lower their federal tax liability: shift income from America to overseas tax havens, simply by setting up a PO box in such corporate hotbeds as Bermuda. This process, known as transfer pricing, allows US corporations to lower their taxes by as much as 60%!
Now the catch with this is, income from US based corporations can only be “temporarily deferred” so as to lower their present liability. Companies can, however, claim credits when terms expire, accounting for taxable income paid to other nations. Now I understand this helps support the US as a corporate-friendly nation, and entices companies to remain engaged here, while also supplying income to other nations that may lack ample resources (how they use this income is a completely different matter). Still, this scenario is estimated to cost the US as much as $90 billion annually.
Now, I’m not for tax policies that will entice companies to establish themselves outside America, but at a time when our government needs new sources of revenue, and we argue over tax loophole strategies for the wealthy, perhaps this is an area we need to evaluate.
Article and podcast from NPR on transfer pricing and foreign tax shelters
New America Urbanist 