U.S. companies that benefited from more than $65 billion in taxpayer-backed loan guarantees have kept nearly $458 billion in profits offshore – avoiding paying billions in taxes to the government that helps them sell goods overseas, a Watchdog.org investigation found.
Using an Export-Import Bank database, corporate records and a database from the Institute on Taxation and Economic Policy , Watchdog.org identified 50 companies that exported billions using bank guarantees yet kept nearly half a trillion dollars offshore and away from the Internal Revenue Service.
The offshore proceeds of the companies benefiting from the bank, if taxed at the 35 percent corporate tax, would have contributed as much as $160 billion to U.S. coffers between 2012 and 2014.
ITEP executive director Matt Gardner said companies are using a loophole to shortchange the taxpayers.
“It’s pretty ludicrous that the federal government would subsidize any company engaging in this kind of tax avoidance,” he said. “But it’s not surprising because the way the federal government and Congress spend money and conduct the tax system are basically disconnected. They don’t talk to each other.”
The bank mostly guarantees private lenders or government borrowers for foreign entities who want to buy products built in the United States.
The companies benefiting from the loan subsidy and keeping profits offshore didn’t see a connection.
General Electric and its subsidiaries exported nearly $5 billion worth of products since 2006 using Ex-Im guarantees, and in the past three years kept nearly $120 billion in profits offshore, corporate records and the ITEP database show. That’s more than twice as much deferred taxes as any other company that received Ex-Im guarantees, databases show.
General Electric spokeswoman Meghan Thurlow declined an interview request but provided a statement, saying the company pays $1 billion in federal, state and local taxes as well as U.S. income taxes.
“We support corporate tax reform, even if that means higher taxes for GE, and support renewing the U.S. Export-Import Bank because both will help us compete around the world and create more jobs at home,” the statement said.
A 2015 analysis of SEC records by Gardner’s group determined that GE’s effective state income tax rate is less than two percent over the past five years with no state taxes paid in 2010 and 2014.
Boeing benefited from $57 billion in taxpayer-backed loan guarantees since 2006, but when it came to paying its taxes the company has $800 million offshore, avoiding U.S. taxes on that money.
Boeing spokesman Tim Neale contends the company isn’t improperly dodging U.S. taxes.
“The $800 million you asked about represents the total accumulated earnings of Boeing-owned subsidiaries in several other countries,” he wrote in an email. “We have not repatriated the earnings (and therefore paid U.S. taxes on them) because we have, or soon expect to, reinvest the money in the subsidiaries that earned these profits.”
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But Gardner said taxpayers have good reason for worry: any taxes that corporations avoid paying will either be made up by other taxpayers or contribute to the federal debt.
“There’s a degree of a double standard when it comes to corporate welfare,” he said, adding Ex-Im Bank is just one several government programs that companies who keep offshore profits use to their benefits. “Why aren’t the people who are critics of subsidies also asking the same tough questions of (these) lavish giveaways?”
Some of the biggest corporate names in the United States enjoy federal guarantees while they avoid federal taxes.
Exxon-Mobil and its subsidiaries exported $2.5 billion using Ex-Im Bank guarantees but kept $51 billion offshore. Caterpillar benefits from $1 billion in taxpayer guarantees but made sure $18 billion was offshore and not subject to U.S coffers. Caterpillar sent an email declining comment.
Exxon spokesman Scott Silvestri said Exxon is one of the largest taxpayers in the United States and the company doesn’t expect a significant tax savings from its offshore proceeds.
“ExxonMobil strictly follows all applicable regulations and laws and is current on all tax returns and payments,” he wrote in an email exchange, adding that included sales, property and income taxes. “Over the past five years (2010 to 2014), the company’s total U.S. tax expense was $54 billion, which is $8.8 billion more than the company earned in the U.S. during the same period.”
Ex-Im Bank spokesman Lawton King declined to provide a bank official to discuss the offshore profits of some of the bank’s exporters and did not address it in an email statement he provided.
While Gardner said the companies are playing the system, other experts blamed the United States corporate tax system for companies keeping profits offshore where corporate tax rates could be a third or less of the 35 percent U.S. corporate tax rate.
“Companies would love to bring back some of this money, quite frankly, but it’s just too expensive,” said Sharon Lassar, a professor in the accounting school at University of Denver Daniels College of Business. “That’s a lot of tax to be paid just to get use of your income when you’re a global company and there are other places you could use that income.”
Diane Katz, a senior fellow at the Heritage Foundation who studies the Ex-Im Bank, said it’s not clear if the money offshore is generated because of Ex-Im loan guarantees, and often the money is reinvested in foreign countries, helping U.S. companies and workers.
“It’s being put to use,” she said. “They don’t just sit on it. They want the money to work by reinvesting in operations and there is a benefit to the U.S. or they repatriate it.”
King denied taxpayers are bearing the costs of the Ex-Im Bank guarantees.
“First thing it’s not a subsidy, and we charge for it,” he said in a brief phone exchange. “That’s why the bank turns a profit.”
Bank officials tout that Ex-Im has had annual surpluses since 2008 and contributed $675 million to the U.S. treasury last year. But like much of the budgeting in Washington, D.C., it gets complicated.
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The Congressional Budget Office contends the Ex-Im Bank’s surpluses are the result of the accounting method the bank uses and would disappear – or require a taxpayer subsidy – if the bank used a more appropriate accounting standard. The bank’s own accounting projects a surplus of about $14 billion through the next decade. Then-CBO director Douglas W. Elmendorf told Congress last year Ex-Im will more likely lose $2 billion in the same period.
Ex-Im Bank has been a source of controversy this summer, opening a rift between Tea Party-backed Republicans who are fighting to close the bank, calling it corporate welfare, and establishment Republicans who say Ex-Im helps keep U.S. companies competitive in the global economy.
The House blocked re-authorization this summer, which stopped any new loan guarantees. But the bank retained enough funding to continue basic operations. The issue may again come back before lawmakers in September.
Public companies report overseas earnings in SEC filings, but only pay taxes on the money if it’s brought to the United States. They are allowed to deduct any foreign taxes paid from those earnings.
Gardner said much of the money companies say was earned offshore may have come from U.S. business and the companies shift it offshore on paper to save money.
“You can make a very good case that whatever the substance of transactions, U.S.-based companies shouldn’t be allowed to indefinitely defer taxes on profits,” he said. “They should be required to pay immediate tax on those profits. They are using the ability to say they’re foreign proceeds as a loophole.”
Josh Kaib, Grayson Quay, Steve Ambrose, Sarah Chavey contributed to this story.
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