Click amount to donate direct to CounterPunch
  • $25
  • $50
  • $100
  • $500
  • $other
  • use PayPal
Keep CounterPunch ad free. Support our annual fund drive today!

The Check-the-Box Loophole


Corporate taxes in America have been in decline now for more than three decades. Contrary to the drumbeat of corporate media throughout this year, and their false claims that US corporations are paying far more than their foreign capitalist cousins, US corporations pay an effective (i.e. actual) tax rate of only about 16-17%.  That’s a combined US federal, foreign states, and US states ‘effective’ tax rate, only 2.2% of which represents the ‘effective rate’ paid on offshore earnings today.

The rising crescendo of demands for still more tax cuts for corporations by virtually all Republicans in Congress, and a good number of Democrats as well, is being whipped up in a joint effort to push through an overhaul of the US tax code. The timing is apropos.  Midterm 2014 Congressional elections are approaching, and politicians once again begun to solicit campaign spending ‘indulgences’ (aka campaign spending contributions) from their corporate friends.

The tax code overhaul idea is also timely, this writer has previously argued, given the still unresolved budget-debt ceiling debates. Those debates were kicked down the road this past October 2013 and are due to come to a head January-February 2014 once again.  Should the Republicans decide to agree to any of Obama’s current ‘smoke & mirror’ proposals to reduce some showcase corporate tax loopholes, that token reduction will almost certainly be accompanied by lowering the corporate tax rate in exchange.  Obama has already proposed to do just that, reducing the top corporate tax rate from 35% to 28%. So the political stage is well set to ‘slip in’ the corporate tax and tax code overhaul discussions into the upcoming debates. The tax code overhaul discussions need not necessarily reflect the entire code.  It could prove a ‘tax code light’, focusing primarily on the corporate income tax.

Senator Baucus’s $1.8 Trillion Multinational Corporate Gift

Democrat Senator, Max Baucus, head of the Senate Finance Committee proposed last Tuesday, November 19,  to “exempt much of the profits earned by American corporate subsidies in foreign countries”, according to a November 20, 2013 article in the New York Times.

Baucus’s proposal would in effect end all taxes on US Multinational Corporations earnings abroad, in exchange for what amounts to a $200 billion payment in back corporate taxes on those companies’ currently estimated more than $2 trillion offshore profits hoard.  Baucus claims his proposal represents a 20% tax rate (compared to the current 35%). But $200 billion of $2 trillion looks more like a 10% tax rate to me.

The Baucus proposal, moreover, would mean the $200 billion is paid only slowly over the course of 8 years—thus leaving the companies to collect interest and reinvest the amount over the 8 year period to earn still more profits.  And it’s likely that $200 billion would silently be dropped somewhere down the political road after 2016 when the public is not looking. However, what would remain permanent in the Baucus proposal is US multinationals wouldn’t have to pay a penny any longer on their earnings offshore that they kept there.

Amazingly, Baucus offered his proposal as a solution to discourage companies to divert their operations and jobs from the US to their offshore subsidiaries. But if they no longer have to pay taxes on offshore earnings, seems to me that’s a strong incentive to shift even more investment and jobs offshore, not less.  Or, at minimum, to reinvest there the profits made there instead of repatriating the profits back to the US, pay the current US corporate tax rate of 35%, and invest the remainder in the US and jobs.

It’s not surprising that the response of the Business Roundtable, the premier big business lobbying arm, was warm to Baucus’s idea.  It’s Vice-President, Matt Miller, noted “It’s good that they are continuing to have these discussions”, as quoted by the global business press source, The Financial Times. On the other hand, lobbying groups for the most egregious industries and corporations now hoarding the lion’s share of the $2 trillion offshore, want more.

Let’s examine how multinational US corporations now get away with paying only 2.2% on their foreign earnings. Keep in mind, the Baucus proposal would eliminate even that, replacing it with a one time $200 billion, paid over 8 years, in exchange for no more taxes on foreign earnings ever.

Gimme a ‘Dutch Sandwich’, with a ‘Double Irish’, & Some Bermuda ‘On the Side’

Multinational Corporations have been engaging in a public relations full court press for the past two years, attempting to convince the public and politicians that the US corporate income tax is the highest in the world. They repeatedly point to lower official corporate tax rates throughout the advanced economies.  It is true, most official corporate tax rates in Europe, Japan and elsewhere are lower than the US 35% official rate. But their corporate tax loopholes are nowhere near as generous as in the US.  In addition, the ‘state’ or ‘provincial’ jurisdictions within many of these countries have higher official and effective corporate tax rates as well.  Corporations pay more at the ‘state-province-district’ levels than the average effective rate of around 2% in the US.

The most telling rebuttal to US multinational corporate claims of US taxation at 35% as among the ‘highest in the world’ is that US corporations have been paying almost no tax on corporate profits earned offshore—while they have simultaneously been redirecting US earned corporate profits to their offshore subsidiaries to avoid paying US taxes as well. This game is made possible by ‘internal corporate pricing’ maneuvers.  It works like this: charge the US operations high prices for goods made offshore and imported back to the US, so that there are little profits to book in the US. Then shuffle foreign made profits around to those countries with super-low tax rules and rates. Book the profits there and pay the lowest rates. Finally, refuse to pay the US foreign profits tax on even those reduced profits booked offshore.

The corporate pricing games that shift profits to offshore subsidiaries was made possible in large part by an IRS tax rule created early in the Clinton administration in 1995. This rule is referred to as the ‘Check the Box’ loophole. It enables multinational US companies to check a ‘box’ on its US tax forms that identifies a foreign subsidiary of the company as a ‘disregarded entity’ for purposes of paying taxes.  The related ‘Look Through’ loophole, then allows the company to move profits between subsidiaries in its offshore operations.

Favorite places to shuffle foreign earned profits are Ireland, the Netherlands, and Bermuda. The Netherlands is preferred because it allows a company to avoid all withholding taxes. That’s called the ‘Dutch Sandwich’. Shuffle the profits there, and then on to Ireland with its 5-6% effective tax rate. Better yet, incorporate the company in Ireland in the first place and book all offshore profits there to begin with.  Shuttle the profits through Ireland to Bermuda, where the effective rate is almost zero, and the combined loophole is called the ‘Double Irish’.  Or how about a ‘Dutch Sandwich’ with a ‘Double Irish’?

It all sounds humorous but it isn’t. Apple Corporation last year avoided $9 billion in US taxes manipulating its profits in this manner. And remember, it’s not just actual profits earned offshore, but US de facto profits switched to offshore subsidiaries by means of ‘internal company pricing’, profits then shuffled around to low tax locations like Netherlands, Ireland, and Bermuda. Google Corp. is another clever manipulator of the arrangements, earning all its foreign income in Ireland, which its then routes through the Netherlands to avoid all withholding taxes.  It thus employs a ‘Dutch Sandwich with a Double Irish’ to go.

This has all been going on since the Clinton years. The result by 2004 was the accumulation of more than $650 billion of U.S. multinational corporation profits in their offshore subsidiaries, retained there and not brought back to reinvest in the US or to pay corporate income taxes to the US government, as US politicians simply looked the other way and allowed it to continue.

During 2001-03 George W. Bush pushed a massive tax cut through Congress, involving tax cuts to personal incomes in general and in capital gains and dividend taxes for wealthy investors in particular.  It has been estimated those tax cuts amounted to more than $3 trillion over the following decade, more than 80% of which went to the wealthiest US households. In 2002, Bush cut corporate taxes as well by hundreds of billions of dollars, in the form of new rules for accelerating corporate depreciation write offs.  Depreciation write-offs on business equipment is another kind of corporate after tax profits that doesn’t show up in the latter totals. It is income that corporations ‘retain’, but must be used for subsequent re-investment in plant and equipment. But that reinvestment can occur offshore, not necessarily in the US. And so it has, as US corporations ‘foreign direct investment’ has surged since 2001, as investment in the US has stagnated.

The Bush administration then followed up its 2002 business tax cuts via depreciation acceleration, with another round of major corporate tax cuts in 2004.  At the same time, in 2004, Bush declared a ‘tax holiday’ for multinational corporations on their foreign profits, now accumulated to more than $650 billion.  The multinationals were then offered a sweet deal: repatriate some of the $650 billion back to the US and pay only a 5.25% official corporate tax rate instead of the official 35% rate. The precondition of the deal was that the repatriated funds had to be reinvested in the US to create jobs.

About $300 billion of the total was repatriated, but the effective rate paid was only 3.6%, not the even reduced 5.25%. And the money was not spent on investment and job creation in the US. Instead, it was used mostly to buyback stock and to finance mergers and acquisitions of competitors. This sweet deal set a precedent. Multinational corporations returned to the pricing practices loopholes noted above and continued to amass even greater profits. Today, the profits and cash hoarded offshore in non-taxable subsidiary ‘disregarded entities’ and shuffled around to Ireland and other places is no less than $2 trillion. The practices were allowed to continue under Obama in 2009 and again in 2012 with the latest ‘Fiscal Cliff’ tax deal of last January 2013.  In 2012 alone, another $183 billion was added to the multinational corporate offshore cash pile.

For the past two years at least, multinational corporations have attempted to repeat the 2004 sweet deal they got from Bush. They got away with it before. Why not do it again?  Instead of paying 2.2%, they want to pay nothing.  This time on $2 trillion, instead of $700 billion.  Baucus would have them pay 10% or $200 billion—though it’s unlikely anything near that would be collected over the 8 years they have to pay it.  But even that is ‘too much’ to their liking. They want tax rules that in effect remove all taxes on US corporate income offshore income, by moving the US to what is called a ‘territorial’ tax system. That would result in an incentive to redirect even more US earned profits to offshore subsidiaries via ‘internal pricing games’.

Today’s effective 12% US corporate tax rate would thus fall even further. That almost total elimination of the US Corporate Tax on offshore earnings would reduce US total federal tax revenues by $60 to $100 billion annually. Over 8 years, that amounts to more than $500 billion lost revenue—in exchange for ‘maybe’ $200 billion.  A net loss of $300 billion, should the Baucus proposal be adopted.  Equally important, it would introduce a major new and further incentive for Multinational Corporations to shift even more US jobs offshore.

Dr. Jack Rasmus is the author of the book, “Obama’s Economy: Recovery for the Few”, published by Pluto Press, London, April 2012. He is the host of the weekly internet radio show from New York, ‘Alternative Visions’, on the Progressive Radio Network, His website is and he blogs at His twitter handle is drjackrasmus.    




Jack Rasmus is the author of  ‘Systemic Fragility in the Global Economy’, Clarity Press, 2015. He blogs at His website is and twitter handle, @drjackrasmus.

More articles by:

2016 Fund Drive
Smart. Fierce. Uncompromised. Support CounterPunch Now!

  • cp-store
  • donate paypal

CounterPunch Magazine


October 26, 2016
John W. Whitehead
A Deep State of Mind: America’s Shadow Government and Its Silent Coup
Eric Draitser
Dear Liberals: Trump is Right
Anthony Tarrant
On the Unbearable Lightness of Whiteness
Mark Weisbrot
The Most Dangerous Place in the World: US Pours in Money, as Blood Flows in Honduras
Chris Welzenbach
The Establishment and the Chattering Hack: a Response to Nicholas Lemann
Luke O'Brien
The Churchill Thing: Some Big Words About Trump and Some Other Chap
Sabia Rigby
In the “Jungle:” Report from the Refugee Camp in Calais, France
Linn Washington Jr.
Pot Decriminalization Yields $9-million in Savings for Philadelphia
Pepe Escobar
“America has lost” in the Philippines
Pauline Murphy
Political Feminism: the Legacy of Victoria Woodhull
Lizzie Maldonado
The Burdens of World War III
David Swanson
Slavery Was Abolished
Thomas Mountain
Preventing Cultural Genocide with the Mother Tongue Policy in Eritrea
Colin Todhunter
Agrochemicals And The Cesspool Of Corruption: Dr. Mason Writes To The US EPA
October 25, 2016
David Swanson
Halloween Is Coming, Vladimir Putin Isn’t
Hiroyuki Hamada
Fear Laundering: an Elaborate Psychological Diversion and Bid for Power
Priti Gulati Cox
President Obama: Before the Empire Falls, Free Leonard Peltier and Mumia Abu-Jamal
Kathy Deacon
Plus ça Change: Regime Change 1917-1920
Robin Goodman
Appetite for Destruction: America’s War Against Itself
Richard Moser
On Power, Privilege, and Passage: a Letter to My Nephew
Rev. William Alberts
The Epicenter of the Moral Universe is Our Common Humanity, Not Religion
Dan Bacher
Inspector General says Reclamation Wasted $32.2 Million on Klamath irrigators
David Mattson
A Recipe for Killing: the “Trust Us” Argument of State Grizzly Bear Managers
Derek Royden
The Tragedy in Yemen
Ralph Nader
Breaking Through Power: It’s Easier Than We Think
Norman Pollack
Centrist Fascism: Lurching Forward
Guillermo R. Gil
Cell to Cell Communication: On How to Become Governor of Puerto Rico
Mateo Pimentel
You, Me, and the Trolley Make Three
Cathy Breen
“Today Is One of the Heaviest Days of My Life”
October 24, 2016
John Steppling
The Unwoke: Sleepwalking into the Nightmare
Oscar Ortega
Clinton’s Troubling Silence on the Dakota Access Pipeline
Patrick Cockburn
Aleppo vs. Mosul: Media Biases
John Grant
Humanizing Our Militarized Border
Franklin Lamb
US-led Sanctions Targeting Syria Risk Adjudication as War Crimes
Paul Bentley
There Must Be Some Way Out of Here: the Silence of Dylan
Norman Pollack
Militarism: The Elephant in the Room
Patrick Bosold
Dakota Access Oil Pipeline: Invite CEO to Lunch, Go to Jail
Paul Craig Roberts
Was Russia’s Hesitation in Syria a Strategic Mistake?
David Swanson
Of All the Opinions I’ve Heard on Syria
Weekend Edition
October 21, 2016
Friday - Sunday
John Wight
Hillary Clinton and the Brutal Murder of Gaddafi
Diana Johnstone
Hillary Clinton’s Strategic Ambition in a Nutshell
Jeffrey St. Clair
Roaming Charges: Trump’s Naked and Hillary’s Dead
John W. Whitehead
American Psycho: Sex, Lies and Politics Add Up to a Terrifying Election Season
Stephen Cooper
Hell on Earth in Alabama: Inside Holman Prison
Patrick Cockburn
13 Years of War: Mosul’s Frightening and Uncertain Future