'Fix the Debt' operates as a front for corporate tax breaks and cuts in government social programs

Sarah Anderson and Scott Klinger of the Institute for Policy Studies have dissected the reality behind the organization "Fix the Debt." In short, what the authors call a "Trojan Horse" amounts to a corporate lobby whose proposals for dealing with the nation's public debt include giving some of the most profitable corporations a tax windfall of $134 billion on their foreign earnings, much of which is now held in overseas tax havens. Among the big winners and members of the campaign: General Electric, JP MorganChase, Goldman Sachs and Bank of America. Not only would these and other companies benefit, but their CEOs would see their already fat personal bottom lines improve as well.

The proposals are part of phony we're-broke campaign when the reality is we-aren't-broke-we-are-being-robbed.

Fix the Debt was co-founded by former Clinton White House chief of staff Erskine Bowles and former Republican Sen. Alan Simpson, the co-chiefs of President Obama's fiscal commission, with considerable input from austerity guru Peter G. Peterson. The organization is carrying on the work of WIN America, a group also bent on giant corporate tax giveaways that folded in April. Fix the Debt has raised $60 million to spray its ideas into public discourse. Giving more tax breaks to corporations swimming in cash isn't the only objective, of course. Whacking away at entitlement and earned benefit programs is on the list, too. All part of what has been labeled a grand bargain but actually would constitute a grand betrayal if enacted.

Fix the Debt's ads, which have just begun to appear, are couched in moderate, seemingly reasonable language about compromise, with spending cuts balanced with some tax increases. But as the IPS report notes, there are two pernicious objectives at work:

1. 'Pro-growth' corporate tax reform. This is Washington-speak for cutting corporate tax rates and shifting to a 'territorial tax system' that would permanently exempt from U.S. taxes all offshore income earned by U.S. corporations.

2. 'Reforming' earned-benefit programs. This means cutting Medicaid, Medicare, and Social Security benefits. While these CEOs have offered few details on how they would cut costs with these reforms, it would likely be by limiting access to these programs paid for by all working Americans and by yet again raising the retirement age.

A key element of the campaign is the proposed shift to a territorial tax system. The way things work now is that, regardless of where U.S.-headquartered corporations make their profits, they owe U.S. taxes on them at a top tax rate of 35 percent. They get a credit for foreign taxes paid. Profits from any investments deemed to be made permanently overseas are exempted unless the money is brought back to the States. So far, so good.

But in many cases when the profits are not invested permanently overseas, corporations tuck them away in tax havens such as Bermuda and the Cayman Islands. If they brought these lightly taxed or not taxed at all profits back to the States, they would have to pay at the 35 percent rate. A territorial tax system that only taxes domestically earned income would allow corporations to "repatriate" those profits without coughing up a nickel to the government. The Obama administration has been cool to the idea of a territorial tax system, while Vice President Joe Biden has spoken out adamantly against it.

Klinger and Anderson focused on 63 of the more than 80 companies that are part of the Fix the Debt campaign and found, through their 10K filings, that they hold $418 billion off-shore. Other sources estimate that the total stashed away by Fortune 500 companies is $1.5 trillion or considerably more.

The biggest potential winners [of a territorial system] are General Electric, which could reap a tax windfall of as much as $35.7 billion on its overseas earnings stash of $102 billion, and Microsoft, which could garner a savings of $19.4 billion on its $60.8 billion in accumulated foreign earnings.

A territorial system would give companies additional incentives to disguise U.S. profits as income earned in tax havens in order to avoid paying U.S. income taxes.

How does Microsoft finagle this disguise? Anderson writes:

A Senate investigation this year shed light on this question. They found that Microsoft takes the patents for software developed at its U.S. research facilities and registers them in tax haven countries. That way, when a U.S. customer buys a copy of Microsoft Office, a hefty chunk of the profits is recorded in no-tax zones.

There's something personal in the proposals, too. The CEOs behind Fix the Debt say they would be willing to give up their millions in gains under the Bush tax cuts that are set to expire at year's end. But whatever they lose that way would be regained because the higher profits from the territorial tax system "would boost their bonuses and stock option gains."

IPS proposes some alternatives. Among them: support for the Stop Tax Haven Abuse Act (introduced by Democratic Sen. Carl Levin of Michigan) that would close offshore tax loopholes and raise $1 trillion over the next decade; ending the Bush tax breaks for the richest two percent of Americans, which would raise another $1 trillion over 10 years; support revenue-positive corporate tax reform to deal with the fact that corporate income taxes are now at a 50-year low while profits are at a 50-year high; support a tax on financial transactions.

IPS has a more detailed proposal to raise trillions of dollars for a more equitable, sustainable and secure economy, America Is Not Broke.

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^{divineorder has a post on the subject here.}