Across the nation, public education, health care, and other critical services are getting slashed because, as many politicians love to say, “We’re broke.”
Apparently it’s the fault of the middle class, so the burden of restoring fiscal stability has been placed on the shoulders of working men and women. It’s time to take one for the team – especially if you’re one of those “greedy, overpaid” public employees, and especially if you’re a public school educator.
What may come as a surprise, or shock, to most people is that backbreaking austerity measures aren’t necessary and could be avoided – if everyone really did pay their fair share.
By vilifying state employees, however, right-wing governors have been able to deflect attention from one of the real culprits: large corporations who use gaping loopholes in the tax system to avoid paying as much as a penny in state income tax.
“What we’re talking about here is a class of multi-state and multi-national tax dodgers,” says Susan Kennedy, manager for Education Funding and Revenue at the Alabama Education Association.
The top of this “class” includes retail and fast-food behemoths such as Wal-Mart, General Electric, Target, Lowe’s, McDonalds, and others who are virtuosos at exploiting loopholes and the complexity of the tax structure.
The corporations reap massive profits, small businesses and individuals shoulder the tax burden, and states are left with huge budget deficits.
“This is a national strategy on the part of these companies,” Kennedy explains. “They look primarily at states where the loopholes are the largest.” A former lead counsel for the Alabama Department of Revenue, Kennedy was instrumental in her state’s successful efforts to end some tax avoidance schemes.
The prevalence of these loopholes is just one deficiency of the nation’s regressive tax system. Still, many states could help avoid major budget shortfalls if they followed Alabama’s example. The National Education Association strongly believes this must the first order of business before lawmakers target public education and the jobs and pensions of educators and other public servants.
Take a look at Wisconsin. According to a recent report from the Institute for Wisconsin’s Future (IWF), the Badger State is losing over one billion dollars annually to the gap between what is legally owed by taxpayers and what is actually paid. The corporate income tax gap in Wisconsin is approximately $113 million.
To help reduce the state’s budget shortfall, all lawmakers had to do was close a handful of special interest tax loopholes and tax breaks. Taking office in January, Gov. Scott Walker would have had a harder time drumming up a fiscal “crisis” to help launch his assault on collective bargaining and public services.
So Where’s the Outrage?
Talking about taxes is always a challenge. The mere mention of the word causes many Americans to squeeze their eyes shut, clamp their ears and shake their heads. Even in this supposed sea of debt, many Republican governors are advocating more tax cuts – as they hack away at public education and social services.
It’s not as if the public isn’t suspicious of the power and influence global corporations have on lawmakers, far from it. But Kennedy doubts the public understands the extent of the scheme, which is technically legal, and its impact on their states’ finances.
“People tend to think ‘Business is business,’” Kennedy explains, “so they believe we’re targeting small business, which is obviously not the case. Small businesses pay their taxes.” In fact, these corporate tax loopholes leave small businesses at a huge competitive disadvantage.
And there’s the lack of public access to information about which corporations pay taxes and where, because of strict confidentiality laws about revenue collection.
Still, advocates of closing these loopholes have discovered that enough information can be retrieved that, if it becomes widely public, could help mobilize a grassroots effort to demand corporations pay their fair share.
A Changing Political Climate?
Heightening public awareness of these loopholes is fast becoming a priority of progressive coalitions across the country, and state education associations, outraged by draconian cuts in school funding and the constant scapegoating of public workers, are taking a leadership role.
In 2009, the Mississippi Association of Educators (MAE) commissioned an analysis of the taxes corporations operating in the state pay. While detailed information on tax returns remained off-limits, specific questions, such as “How many corporations paid zero taxes in the last three years?” were not.
What they found out was staggering: Of the state’s largest 130 companies, only 27 paid any corporate income tax.
How does this translate into actual dollars lost? In neighboring Alabama, successful efforts to close similar loopholes a few years ago has generated $150 -$200 million annually. For Mississippi, the regained revenue, while no budget cure-all, could provide a much-needed boost to a public school system that is underfunded this year by more than $200 million.
“Many students in my state don’t have access to modern technology,” says Frank Yates, MAE executive director. “It’s because corporations aren’t paying their fair share. They are depriving students of many opportunities.”
MAE is part of a statewide coalition that is calling on lawmakers to close these loopholes, and the Mississippi Department of Revenue has already sued two companies to try to collect state taxes.
And what about the often-repeated argument that these businesses will leave any state where they can’t exploit loopholes, taking all those jobs with them?
Not likely, says Yates.
“They’re not going to pack up and leave market share to their competitors. They need their customer base more than they need this loophole.”
Going on the offensive against talking points that discourage any honest debate about revenues is critical, says Susan Kennedy. But as austerity measures take hold across the country, the political climate might be changing.
“The public isn’t really aware of the extent of the corporate tax-dodging. But they need to know it and they will know it. And, considering what they’ve been told to sacrifice, they will be very, very angry.”
For state-by-state information on tax subsidies and loopholes, visit Accountable USA, a web site co-sponsored by the National Education Association.