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Economist James Henry explains how the “activating finance” tax break permanently keeps billions of corporate revenue offshore, furthering the wealth gap in America

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JESSICA DESVARIEUX, PRODUCER, TRNN: Welcome to the Real News Network. I’m Jessica Desvarieux in Baltimore. Christmas came early for Wall Street and corporations on Friday. Both houses of Congress passed the $1.1 trillion spending bill, which includes a $650 billion tax cut. This cut would add up to more than half a trillion dollars to the deficit over the next ten years. Now corporations and banks will be allowed to permanently conduct operations in foreign countries without paying current U.S. taxes, known as active financing. The mostly Republican-supported bill also includes some tax breaks for everyday people, like making permanent the Child Tax Credit, which provides a credit of up to $1,000 per child under the age of 17 for low-income families. President Obama said that he will sign the bill into law before the end of the year. But when you do the math, what do all of these tax breaks add up to for everyday people? And with less money funding the government, how will this affect social programs supporting everyday people? Now joining us to help answer these questions is our guest, James Henry. James is a leading economist, attorney, and investigative journalist who has written extensively about global issues. Thanks for joining us, James. JAMES HENRY: You’re very welcome. DESVARIEUX: So James, there’s so much in this bill, first of all. But let’s look specifically at the active financing provision. Why is that particularly problematic if you’re looking for corporations and banks to pay their fair share in taxes? HENRY: Well, there’s about $650 billion of tax cuts and the active finance and the so-called CFC provisions, these are technical terms for provisions that basically allow great big multinational companies to park profits offshore tax-free until they bring them back to the United States. It accounts for the fact that companies like General Electric have averaged a 1.8 percent effective U.S. corporate tax rate over the last decade, and the fact that U.S. companies as a whole have had a declining share of the U.S. tax base. So this is basically just continuing the Christmas stocking stuffing tradition that we’ve seen year-in, year-out, where 70-75 percent of the benefits of this tax bill will go to multinational companies and to wealthy elites. There were basically four provisions in this bill that account for about 75 percent of the tax benefits, and they’re all a benefit only to the wealthiest people, the largest companies in this economy. DESVARIEUX: But James, Republicans like Speaker of the House Paul Ryan, they would argue that despite the tax break increasing the deficit, despite it going to mostly the wealthy, it will pay for itself at the end because it’s going to grow the economy, and create jobs, sort of this trickle-down economics theory. Do we have empirical evidence that supports or disproves this fervent belief especially held by conservatives? HENRY: No, that’s voodoo economics. We’ve known for decades, we’ve tired experiment after experiment since the 1970s and ’80s with tax cuts. They do not pay for themselves, and these tax cuts are no exception. In fact, these are among the worst kind of tax cuts. They’re much less efficient than many others. The research grant here is going to be of little interest to companies in terms of stimulating real research. The accelerated appreciation. There’s no evidence that it pays for itself. And certainly these offshore tax cuts, if anything, generate businesses offshore outside of the U.S. economy. Not ones that generate jobs here. DESVARIEUX: Okay. So it’s safe to say, like you said, it’s voodoo economics. But let’s get into how this is going to affect the wealth gap in this country. We have about 20 of the wealthiest people own more wealth than the bottom half of the American population combined. That’s pretty scary. That’s according to a recent IPS report that came out. So James, how is this tax cut going to affect the wealth gap? HENRY: This is going to make it worse. I mean, Obama today in his press conference just glossed over all of the distributional impacts of his bill. And then he’s on his way to Hawaii for a couple weeks of vacation. You know, the people who voted for this bill are not living in the same world that most ordinary Americans are living in, where inequality is rising, poverty is at all-time records, and the economy has been growing at a modest 2 percent. The unemployment numbers have been coming down, but those are official unemployment. There’s a lot of slack in this economy, still. And I think to this, this bill, doesn’t address any of that. It just flies in the face of all the concerns that ordinary Americans have for, you know, their incomes and their children’s incomes, and the future of inequality. I mean, this is a devastating bill from the standpoint of addressing inequality and economic justice. DESVARIEUX: And ordinary Americans certainly wouldn’t be cutting taxes for the wealthy. Actually, the opposite. According to a Gallup poll taken this year, 52 percent of Americans want the government to redistribute wealth by heavy taxes on the rich. So James, it seems like Congress is doing the exact opposite with these tax cuts, not listening to the majority of Americans. Why are their voices being ignored, and what special interests were behind this bill? HENRY: Well you know, there’s more than 1800 tax lobbyists in Washington, DC. They don’t work for you and me. This, this bill was written, 2,200 pages of it, was written by tax lobbyists and the big contributors to both parties. And you can see provision after provision was really fine-tuned for special interests, if you go through the bill carefully. So you know, there’s no question that money talks in this situation, and we have campaign finance laws that are fundamentally broken. They don’t address the issues. And it’s no, no surprise, really, that Congress is basically beholden to the people that are paying for their campaigns and for lobbying efforts that they’re influenced by. So you know, until we address that fundamental reality of the U.S. political system, where money talks and the rest of us are left out of the scene, you know, I don’t expect this situation to change. I think we’re back here next year talking about another tax-extender bill with the same dimensions. DESVARIEUX: All right. James Henry, thank you so much for joining us. HENRY: You’re very welcome. DESVARIEUX: And thank you for joining us on the Real News Network.


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