Republican Tax Tactics

In Romney’s July 28, 2012 interview with ABC his taxes were brought up (one year he paid 13.9%) and he said “My view is, I’ve paid all the taxes required by law, I don’t pay more than what’s legally due. And frankly if I had paid more than what’s legally due I don’t think I’d be qualified to become President. I think people would want me to follow the law and pay only what the tax code requires.” When asked if he’d go back and look at his tax returns to see what percentage of tax he paid he said “I know I’ve paid a very substantial amount of taxes in every year since the beginning of my career so far as I can recall.” (July 31 Democratic Senate President Harry Reid tried to goad Romney into giving more tax returns by saying that he didn’t pay taxes for 10 years.) August 3 in Nevada Romney is still saying he’s paid a lot of taxes and won’t release anymore than his 2011 when it’s done.

On July 31 we heard on average it costs parents $250,000 and 20,000 hours to get their kids to the Olympics; I wonder if any of this is deductible. On August 1 Senator Marco Rubio, R-Fla., introduced the Olympic Tax Elimination Act, to amend the Internal Revenue Code of 1986 that began taxing athletes at a rate of 35% on the value of their Olympic medals and cash payments of $25,000 for gold, $15,000 for silver and $10,000 for bronze. Rubio introduced the bill in response to a report from Grover Norquist’s lobbying group Americans for Tax Reform estimating that the medals would subject gold medal winners to about $8,936 in taxes, silver medalists to $5,385 and bronze medalists to $3,502 in taxes. The research found that in addition to the cash payments to Olympians, at today’s commodity prices, the value of a gold medal is about $675, a silver medal is worth about $385 while a bronze medal is worth under $5. Rubio’s bill would exempt US Olympic medal winners from paying federal taxes on their medals and prize money earned in the Olympics. If enacted into law, the gross income of Olympic athletes “shall not include the value of any prize or award won by the taxpayer in athletic competition in the Olympic Games.”  This would apply to prizes and awards received after December 31, 2011. (Some other countries tax the awards US athletes earn in their countries and the UK has waived the tax for the 2012 Olympics.) I do agree that taxing the value of the medals is inappropriate. But, I do think the cash awards should be taxed as income and at the same rate as if the money was earned here in the US.

I think this is an interesting tactic by Republicans who want to have the American people believe they want to reduce taxes. This tax that Rubio wants to do away with was put in place during the Reagan era and to me it again shows that Reagan’s economics were not good for the average American. Now let’s look at the taxes on corporations.

Under legislation dating from 1984 (again during Reagan’s term as president) taxes were lowered on companies doing business in other countries. We then had the Foreign Sales Corporations (FSC) Repeal and Extraterritorial Income Exclusion Act (ETI) of 2000 which was introduced by Texas Republican Representative Bill Archer on July 27, 2000 and signed by President Clinton on November 15 (note: both houses of Congress were controlled by Republicans). This Act effectively reinforced the FSC tax break and extended it to all types of entities with qualifying foreign sales, including 'S' corporations and LLCs, which were previously excluded. Foreign companies which are US taxpayers could also use the tax break which was not the case previously. (There are rules requiring a certain proportion of US-manufactured content and a certain proportion of foreign costs; and foreign tax credits on the goods concerned are not available to a participating entity. Actual manufacture can take place either inside or outside the US.) Basically, the US Internal Revenue Code authorized the establishment of FSCs, being corporate entities in foreign jurisdictions through which US manufacturing companies could channel exports; 15% of the revenue concerned was exempted from corporation tax, meaning (at 35% tax) that companies kept 5.25% more of their revenue. The European Union (EU) did not accept the new legislation as conforming to World Trade Organization (WTO) rules and after a long series of hearings and appeals the WTO ruled definitively against the ETI rules in late 2002. In the absence of a substantial change in the ETI regime, the EU filed a complaint with the WTO and it was eventually declared unacceptable. The EU prepared a list of US products on which it intended to apply sanctions in the form of countervailing duties and obtained the WTO's permission for such action which it finally put into effect in early 2004. After much back and forth, President George W Bush finally signed a law in late 2004 which repealed the FSC-ETI legislation in favor of broader tax reliefs. In other words, Bush gave the companies a bigger tax break. 

America, it’s not about what taxes Romney paid it’s about his continued support of the tax breaks for the rich and companies doing business overseas. There is no way that he can create jobs in the US without incentives to bring jobs back. I again think he’s talking out of both sides of his mouth. Clinton gave in to his Republican Congress and perhaps this is why Republican Paul Ryan said Obama isn’t a Bill Clinton Democrat. Obama is proposing a 20% tax credit for companies bringing jobs back to the US; this is what we need and it would help deter any future complaints from the EU.