Senators Want Companies to Reveal Where They Keep Their Cash

If you think that multinational corporations take measures to avoid paying your country’s taxes, you have two ways to deal with it. You could reform your tax code so that the incentive to avoid taxation disappears. Or, you could go the route of Stuart Smalley. From the Minneapolis Star Tribune:

Sen. Al Franken of Minnesota is among a group of senators who want U.S. multinational corporations to publicly name the countries where they book profits.

In a recent letter to the secretary of the Treasury, Franken and several colleagues called for country-by-country disclosure of foreign profits as a way to head off accounting maneuvers many corporations use to redirect revenue from countries where they are earned to tax havens.

“Multinational companies tend to make these bogus transactions where they want to book as much profit in the low-tax countries and have as little profit in the high-tax countries,” Franken said. “It’s eroding the tax base of the developed world.”

Minnesota multinationals were generally nonresponsive to Star Tribune requests for comment on the transparency measure. Medtronic, St. Jude Medical and 3M declined to comment, while an Ecolab spokesman said the company “complies with all tax regulations and pays taxes in the countries where the income is earned.”

“We would prefer to see effort toward comprehensive corporate tax reform to create a system which eliminates the need for companies to keep money offshore to remain competitive,” spokesman Roman Blahoski added.

The cost of a draconian effort to extract taxes through inquisition, both in terms of operational expense and depressed economic activity, has to eclipse any revenue which it might generate. To the extent multinationals shift money around to avoid taxes, the effort would only be worth it if tax rates remain noncompetitive. Fix the rates, and get the revenue.

Indeed, research has shown that reduced tax rates can result in higher revenue than that collected under higher tax rates. Of course, for people like Franken, it’s not actually about the revenue. It’s about punishing success under the premise that it was achieved through exploitation.