Jeff  Carter

The government tried to reduce paperwork on tax filings. By simply checking a box, multinational companies can avoid taxes. By making sure their pencils are sharp, companies save close to ten billion in corporate taxes each year.

Now that the tax rule is in place, companies lobby hard to keep it. “Seeking rents” I believe is the term used in economics.

I don’t have a problem with companies trying to avoid taxes. Hell, we all want to avoid taxes. It’s human and a part of being rational. Demand curves slope down.

The real problem is the US tax code itself. Until we make it flatter, with no deductions, nothing will change. Special interest groups of all types will seek rent and try to lobby to retain loopholes. The code needs to be changed so everyone pays some tax.

This particular tax break is only available to large multi-nationals. The average Joe can’t exploit it. But the average Joe generally gets caught in all tax schemes at every level of government.

Check-the-box allows companies to avoid the normal 35 percent U.S. corporate tax on certain types of income. The Treasury Department estimates that annual revenue losses from check-the-box have hit almost $10 billion. Other countries are also said to lose billions as income is shifted to places with low or no taxes, although there is no official estimate.

The impact of check-the-box goes beyond the drain on government coffers. The rule, along with other tax provisions, has helped fuel explosive growth in foreign investment by American corporations. Since 2004, the earnings that U.S. companies keep overseas have doubled to about $1.8 trillion, U.S. Department of Commerce data show.

Jeff Carter

Jeffrey Carter is an independent speculator. He has been trading since 1988. His blog site, Points and Figures was named by Minyanville as one of The 20 Most Influential Blogs in Financial Media.