U.S.-based multinationals are currently holding $2.4 trillion in profits overseas to avoid paying taxes on them. Remarkably enough, the 11 technology companies represented at Wednesday’s summit with President-elect Donald Trump at Trump Tower in New York account for about one-quarter of that total — a staggering $560 billion — all by themselves.
So while some among the technology industry made muted sounds about refusing to attend a summit with someone who so flagrantly violates tech’s supposed values, they were never going to follow through: Trump is worth far much too much money to them.
U.S.-based multinationals are, in theory, supposed to be taxed at a rate of 35 percent on any profits they earn anywhere on earth. But because tax law also allows multinationals to postpone paying taxes on overseas profits until the money’s brought back to America, corporations have a huge incentive to use financial shenanigans to appear to “earn” as much as possible in other countries — something which is easier for tech companies than most others because their value is largely found in their immaterial intellectual property rather than immovable factories. Companies then refuse to bring the cash back until they get a special sweetheart deal slashing their rates.
Trump has promised to deliver such a huge gift to multinationals by allowing them to bring back overseas profits at a one-time rate of 10 percent. As he put it during the campaign’s final debate, “We’re going to cut business taxes massively.”
This reduction in the tax rate from 35 percent to 10 percent could potentially be worth as much as $140 billion to the corporations meeting with Trump. (In practice it would be somewhat less, since they likely would not bring all the money back to America, and may have already paid foreign taxes that they can deduct from their U.S. tax bill.)
Trump has claimed that such a gigantic tax cut will lead to increased hiring in the U.S., but there’s no reason to believe this. When lobbying for a similar tax holiday in 2004, U.S.-based multinationals corporations also claimed they’d use their bonanza to create jobs in the U.S. In reality they actually cut jobs, as well as spending on research and development. The gusher of money was instead used for stock buybacks and to increase executive salaries. Compensation for the top officials at the biggest affected companies increased about 60 percent after the tax holiday.
“The last thing we should be doing is rewarding these bad actors with special tax breaks that are unavailable to the rest of us,” said Matt Garner, a senior fellow at the Institute on Taxation and Economic Policy. “The critical question to ask about corporate tax reform going forward is how it can stop companies like Apple and Microsoft from fleecing American taxpayers by shifting their profits into tax havens. And this doesn’t seem like a question that the business leaders attending the tech summit will be interested in helping the next administration to answer.”
Here are all the corporate attendees at the Trump meeting and the amount of profits their companies are holding overseas, based on a recent study by Citizens for Tax Justice. Because of limited financial disclosure by corporations, some of the numbers are estimates.
Tim Cook, Apple CEO
Satya Nadella, Microsoft CEO
Brad Smith, Microsoft president and chief legal officer
Ginni Rometty, IBM CEO
Larry Page, Google founder
Chuck Robbins, Cisco CEO
Safra Catz, Oracle CEO
Brian Krzanich, Intel CEO
Jeff Bezos, Amazon founder and CEO
Sheryl Sandberg, Facebook COO
Elon Musk, Tesla CEO
Alex Karp, Palantir CEO
Gary Cohn, current COO of Goldman Sachs and soon to be chairman of Trump’s National Economic Council, was also present at the meeting. Goldman Sachs is holding an additional $28.6 billion overseas.