(Detroit News):
Congressional investigations into IRS, Apple underscore deeper problems with antiquated system
Two Michigan politicians were in the Washington spotlight last week hosting political investigations into alleged misconduct by one of the federal government’s most disliked agencies and one of America’s most admired companies. U.S. Rep. Dave Camp, R-Midland, led a House inquiry into who authorized the IRS targeting of conservative non-profit groups. And Democratic Sen. Carl Levin accused Apple Computer of avoiding U.S. taxes by sheltering foreign profits overseas.
Though the investigations are unrelated, both shed light on a U.S. tax code in need of urgent attention.
The Internal Revenue Service and Apple inquiries are exhibits A and B that federal tax law is in need of overhaul. Strip the tax code of its byzantine rules covering nonprofit free speech and its punitively high corporate tax rates, and the opportunities for IRS abuse and corporate tax avoidance would diminish greatly. .
Camp, chairman of the House Ways and Means Committee, is also the House’s lead advocate for reforming the U.S. tax code, which he says is at the core of IRS abuse.
“The simple fact is, the American people should be able to trust and have faith that the tax code will treat them fairly,” he told The Detroit News. “Trimming the branches will not solve the problem when the roots of the tree have gone rotten.”
Rotten is a good term for the treatment of nonprofit 501(c)4 organizations at the core of the IRS tea-party hunt. Unlike charitable non-profit 501(c)3s, donors to 501(c)4s do not receive tax benefits for their contributions. Whether on the left or right, they are legal activist groups — yet the IRS put them under the microscope, asking for donor lists and email lists.
“That’s illegitimate. These are voluntary organizations that don’t sell anything. There is no tax event,” says Jack McHugh, a legislative analyst with the Mackinac Center. “The correct policy is for the IRS to do nothing.”
Meanwhile, on the other side of the Capitol dome, Levin protested Apple Computer CEO Tim Cook and his company’s sheltering of money in low-tax Ireland to avoid a tax system that is needlessly complicated.
Levin accused the Fortune 500 giant of employing “alchemy” to lower its tax bill. In truth, Apple is doing simple math.
Combined U.S. and state taxes whack corporate profits to the tune of 39.1 percent, the highest rate in the developed world. Worse, multinationals like Apple must pay taxes on overseas earnings that they want to repatriate to the U.S. — on top of taxes paid abroad. The U.S. is virtually alone in refusing to recognize a territorial tax system applying business taxes only where money is earned. No wonder Apple keeps $100 billion of its estimated $150 billion in cash overseas. This tax code-induced flight starves the U.S. of business investment — and the resulting tax revenue windfall — that would result from repatriated foreign earnings.
How to fix these problems? Let Camp answer that.
“A flatter, fairer, more efficient tax code will help families and strengthen the economy,” he says.
In the midst of an historically anemic economic recovery, America’s own tax code has erected barriers against American business investment while also choking the voice of non-profits that want to reform the system.
The simpler the tax code, the smaller the IRS — and the freer are businesses and citizens.