Twenty-nine years ago, billionaire hotel magnate Leona Helmsley told one of her housekeepers: “We don’t pay taxes; taxes are what the little people pay.”
Her words set off a firestorm that spanned the political spectrum.
Today, our tax system has become so rigged by Helmsley’s modern disciples that her belief that only “little people” pay taxes increasingly shapes our tax system.
More than $700 million of employee state withholding taxes are legally pocketed by 2,700 companies, rather than being sent to state treasuries, says a new report from Good Jobs First, a nonprofit group that tracks corporate government subsidies. The report, “Paying Taxes to the Boss,” documents programs in Illinois, Ohio and 14 other states that let corporations that collect state withholding taxes from their employees keep a portion of those taxes to pay for corporate projects.
Workers work hard all day, and think that their tax dollars will pay for good schools, adequate police and fire protection, safe bridges and roads. Instead, states are channeling this revenue to pay for improvements to factories and office buildings, maybe even new carpet in the bosses corner office suite. The corporations that Good Jobs First named in its report are the same ones that often show up on lists of companies avoiding taxes or aggressively lobbying to cut corporate-tax rates. They are such giant companies as General Electric, Ford and Caterpillar.
Corporations have tapped the little people’s increasingly meager resources to chip in to pay for their facilities. For example, Apple which is sitting on more than $100 billion in cash, recently announced a new $304 million operations center in Austin, Texas. Taxpayers are kicking in $21 million from the Texas state government and $9 million from Austin to aid America’s richest corporation. Meanwhile, Texas has cut $4 billion from its education budget and laid off more than 100,000 teachers.
While corporations have successfully lobbied to keep some of their employees’ tax payments for their own corporate uses, and won other direct taxpayer subsidies, such as Apple’s Austin windfall — moves that have created a drain on public coffers — they also have pressured state lawmakers for rules rigged to reduce their corporate state tax obligations.
A recent Citizens for Tax Justice (CTJ) study of state corporate taxes found that among 265 large and profitable corporations, 68 paid no state income taxes in at least one year between 2008 and 2010, and 20 averaged a tax rate of zero or less over the entire three year period. State-level tax dodging cost state governments more than $42 billion over the three-year period, according to CTJ.
The diversion of state tax revenue into corporate coffers is an underreported contributing factor to the state fiscal crisis that has resulted in 2.5 percent of the nation’s teachers losing their jobs. In just the first two weeks of April, Detroit’s public schools laid off 4,000 employees, while Cleveland’s schools cut 600 jobs. Dozens of small communities have similarly downsized their school staffs in the last month.
It wasn’t always this way. Not long ago, when workers looked at the pay stubs and saw that they had paid state taxes, they could rest certain that those funds would be spent on public projects. Corporations used to pride themselves for being the biggest contributors to city and state tax rolls. Today, they boast more about their charitable giving, such as buying baseball uniforms for the local school — luxuries that the local school district can no longer afford.
Corporations that behave this way have become like a pickpocket who returns to the scene of the crime and offers to buy his victim lunch because he has no money.
It’s time for us little people to rise up, as they did three decades ago, and denounce those who embrace Leona Helmsley’s worldview. America needs a tax system that meets our needs to pay for good schools along with safe and dependable infrastructure. We’ll only get there if the “big people” start paying their fair share, and stop picking employees’ and taxpayers’ pockets.
Scott Klinger is an Associate Fellow at the Institute for Policy Studies.