Follow the Money... See where your tax dollars are really going!
Last year, Microsoft reported making a record profit of $23 billion on $70 billion in sales. Had Microsoft paid their fair share of State taxes, they would have paid 1.5 Percent times $70 billion – or one billion dollars in State taxes. This still would have left Microsoft a record profit of $22 billion – and they could have deducted the one billion in State taxes from their federal taxes. Instead, despite $23 billion in record profits, Microsoft paid next to nothing in State taxes!
In this report, we will detail why the Microsoft Billion Dollar Per year Tax Scam not only risks the future of one million children – who must endure some of the lowest funded most over-crowded schools in the nation – but also has robbed our families of tens of thousands of jobs here in Washington State. Tax Breaks for Wealthy Multinational Corporations Do Not Create Jobs…Just the opposite, they cost jobs!
"We'd have a much easier time funding education if companies like Microsoft weren't picking our pockets for tax breaks year in and year out"
State Senator Erik Poulsen, D-Seattle (2005).
Connecting the Dots between Billions in Cuts to School Funding and Billions in Tax Breaks for Wealthy Multinational Corporations
In this report, we will expose how our State legislature cut $1 billion in School Funding in order to give Microsoft $1 billion per year in corporate welfare. This billion dollar cut in school funding cost 10,000 teachers their jobs - and is the primary reason our State has the lowest funded most over-crowded schools in the nation.
But if this were not bad enough, we will also expose the fact that Microsoft Tax Dodging did not create any new high tech jobs. Instead, Microsoft also abuses the H-1B Visa Mill to replace tens of thousands of better qualified American high tech workers with lower wage foreign workers.
The primary financial benefit for this robbery of our children’s future and unfair treatment of high tech workers goes mainly to three people, Bill Gates, Steve Ballmer and Paul Allen.
Despite giving away billions of dollars to wealthy corporations during the past 10 years (or because of it), not a single new job was created. The policy of giving away tax breaks to the rich – and transferring the tax burden to the poor and middle class (also called Trickle Down Economics) has been a disaster and has led to the greatest disparity in wealth between the rich and everyone else since 1929.
Microsoft Tax Scam Costs our State $1 Billion Per Year
Microsoft’s profit margins are among the biggest in the history of our planet. Whereas most businesses are lucky to achieve a margin of 5% to 10%, Microsoft has a profit margin of nearly 30%. One third of every sale is pure profit.
Microsoft Annual Sales Profits and Expenses (in Billions $)
For fiscal 2011, which ended on June 30, 2011 for Microsoft, Microsoft made $23 Billion in profit on $70 Billion in sales.
Documenting Microsoft’s Billion Dollar per year State Tax Scam
Like Boeing, Microsoft receives all kinds of hidden tax breaks - like millions in credits for equipment and property tax exemptions for their intangible property. But we will focus on the biggest State tax break, namely the Software Royalty License tax scam.
The Washington State B&O Software Royalty Tax applies to “…every person engaging within this state in the business of receiving income from royalties…for the granting of intangible rights, such as…software licenses.” Furthermore, “Royalty income from software licenses is taxed at the ‘domicile,’ or location, of the owner of the property.” Because it is a wholesale tax, it applies to sales regardless of the location of the customer – whether in the U.S. or in another country.
Our State’s Software Royalty License tax rate historically has been 1.5%. However in 1998, under pressure from Microsoft, the State legislature reduced this rate down to 0.5%. Nearly all of Microsoft’s revenue comes from selling software licenses.
One might assume that with $70 billion in gross sales, Microsoft would pay State sales taxes of 0.5% times $70 billion – or $350 million per year. But they don’t. According to a former Microsoft manager who has devoted an entire website to this subject (microsofttaxdodge.com), Microsoft ships about half of its licenses or $35 billion per year to Nevada where there is no corporate tax. The sole reason to do this is to evade paying $350 million per year in corporate B & O royalty taxes in Washington State.
Instead of taking Microsoft to court for tax evasion, Ross Hunter, State Rep from Bellevue and Microsoft’s head lobbyist in Olympia, passed a bill in 2010 which exempted Microsoft from having to pay this B & O Royalty tax. To add insult to injury, during the same legislative session, Ross also raised the B & O tax rate on many other businesses from 1.5% to 1.8% to make up for the fact that Microsoft was not paying their fair share. http://microsofttaxdodge.com/2010/04/microsoft-gets-nevada-royalty-tax-cut-and-tax-amnesty.html
What would Microsoft pay if this tax exemption was eliminated and the royalty rate was restored to its historic rate of 1.5%? Microsoft’s sales for the current year were $70 billion. 1.5% x $70 billion = $1 billion. The cost to Microsoft would be even less – because they could deduct their State taxes from their federal taxes.
Paying their Fair Share of State Taxes Would Only Reduce Microsoft’s Profit Margins by 1 Percent
Even though they would get about one billion per year less in profits by paying their fair share of State taxes, Microsoft is so profitable, that it would barely affect their profit margin.
Can the Legislature cut $1 billion in School Funding in order to give Microsoft $1 billion in corporate welfare?
There is a serious legal question as to whether the legislature even has a legal right to exempt Microsoft from paying one billion per year in State taxes at the same time that the legislature is cutting more than one billion dollars per year in school funding. Our State Constitution makes it quite clear that the Paramount Duty of our State legislature is funding public schools – not handing out one billion in corporate tax breaks to Microsoft. Microsoft is sitting on over $40 billion in cash. There is no significant benefit to Microsoft in their tax scam. But there is a real harm to our State’s one million school children in continuing with this sham. Because of Microsoft’s huge tax break, our schools are 47th in the nation in school funding and our kids are subjected to among the highest class sizes in the nation.
One billion dollars could pay for 10,000 additional teachers and bring class sizes and school funding in our State much closer to the national average.
With our State facing a $2 to $3 billion budget shortfall for the next Biennium, It is time to suspend the Microsoft tax exemptions.
Robbing from our State’s One Million School Children to give to the Richest Corporation in the History of the World is morally and legally wrong. Sadly, as we will see next, this billion dollar per year tax avoidance scam costs us tens of thousands more jobs than it creates…
Microsoft H1B Visa Mill Abuses… Adding Insult to Injury!
How many jobs did we get for giving Microsoft one billion per year in tax breaks while they are making $23 billion per year in profits?
As of June 30, 2011, there were 40,700 Microsoft employees in Washington State – 100 less than there was three years ago on June 30,2008. But of these, as many as 20,000 are H1B foreign workers (with 3,000 to 4,000 new H-1B workers arriving every year and staying for 6 years). Of the remaining 20,000 US workers, only 1,000 are actually from the State of Washington. Nationally, there are at least 240,000 unemployed American high tech workers – with the number rising every year. There are about 300,000 H-1B foreign workers in the US. A study of H1B applicants found that nearly half of their application forms had fraudulent information.
Foreign workers want to come to America because wages in their own country are only one tenth American wages. But the effect of importing low wage foreign workers is to lower American wages and cause rampant unemployment among qualified American workers. I personally know of American Microsoft workers who were required to train their foreign replacements – and then laid off.
Record State Budget Deficits Follow Guest Worker Employment
Since the H-1B cap was raised in 2000, 9 out of 10 new jobs in IT have been awarded to H-1Bs. By the end of December 2001 more than 890,000 H-1B workers were employed in the United State. Special visas and offshore outsourcing go hand-in-hand, as many companies import H-1B and L1 workers, force US citizens to train them, then offshore the work and lay off their US staff.
The downstream result of all this is the current massive state budget deficits that now threaten our educational system, social services, public safety and the public infrastructure. These special visas and offshore contracts are outside the federal and state tax systems, with payments transferred to offshore accounts.
They usually do not pay taxes. Meanwhile, they are replacing taxpaying US citizen workers. The bottom line in all of this is that when corporations import H-1B and L-1 visa holders, they are being subsidized heavily by the taxpayers of their state. Meanwhile, the reduced US citizen spending has begun its ripple effect throughout the economy, forcing further job losses in all sectors. http://www.h1b.info/about.php
Corporations Make Billions Not Only Outsourcing Jobs… But Also Importing Lower Wage Foreign Workers to Displace American Workers
Thousands of highly skilled American workers have lost their jobs not only to overseas sweat shops but also by being forced to train their replacements right here in the State of Washington.
“Wage depression is a chronic complaint critics have about the H-1B program: some studies have found that H-1B workers are paid significantly less than U.S. workers] It is claimed] that the H-1B program is primarily used as a source of cheap labor. There is only one way for American citizens to get their jobs back - they must demand that all nonimmigrant work visas be abolished. Our experience with the practical operation of the H-1B program has raised serious concerns, however, that what was conceived as a means to meet temporary business needs for unique, highly-skilled professionals from abroad is, in fact, being used by some employers to bring in relatively large numbers of foreign workers who may well be displacing U.S. workers and eroding employers' commitment to the domestic workforce."
Robert Reich, Former US Secretary of Labor
Employers have unusual leverage and power over the foreign H1B worker because that worker cannot easily change jobs once they are here. Employers can pay them less, work them harder, and refuse to give them salary increases because they know the H-1B can't leave as easily as a U.S. Citizen in a similar position. If H1B workers decide to change jobs, they need another employer to sponsor them for the H1B visa, and the big "carrot" for the H1B worker is the promise of a "green card". If they leave the first employer for another one, the green card process which has to start over from scratch. The prize of a green card is used as a carrot by the first employer because they know that the H-1B is taking a huge risk if his visa expires before the green card is approved. This carrot and stick game places the H1B worker in a bad position, making him essentially an indentured servant, docile, submissive and willing to work for less pay.
The Outsourcing Visa Mill
In his floor statement on H-1B Visa Reform, Senator Dick Durbin stated "The H-1B visa job lasts for 3 years and can be renewed for 3 years. What happens to those workers after that? Well, they could stay. It is possible. But these new companies have a much better idea for making money. They send the engineers to America to fill spots--and get money to do it--and then after the 3 to 6 years, they bring them back to work for the companies that are competing with American companies. They call it their outsourcing visa. They are sending their talented engineers to learn how Americans do business and then bring them back and compete with those American companies." Critics of H-1B use for outsourcing have also noted that more H1-B visas are granted to companies headquartered in India than companies headquartered in the United States.
An L-1 visa is a visa document used to enter the United States for the purpose of work in L-1 status. It is a non-immigrant visa, and is valid for a short amount of time, generally three years. L-1 visas are available to employees of an international company with offices in both the United States and abroad. The visa allows such foreign workers to relocate to the corporation's US office after having worked abroad for the company for at least one year prior to being granted L-1 status. The L-1 visa has two subcategories: L-1A for executives and managers, and L-1B for workers with specialized knowledge. L-1A status is valid for up to 7 years, L-1B for 5. Over 200,000 L1 visas are granted every year – making the problem just as large as the H1B visa abuse problem.
In testimony before a Congressional Committee, an expert on L1 and H1B visas stated:
American workers, already hard hit by the job losses of the past few years, are being pounded as well by the unfair competition coming from the importation of foreign workers willing to take American jobs for lower wages. Some of our nation's best jobs in the high tech industry are increasingly being surrendered to foreign workers coming in through both the H-1B and the L-1 program. Unemployment in the Information Technology sector of our labor market -considered critical to this nation's economic future - stands at 7 percent, which is significantly above the overall unemployment rate, and among the highest rates ever recorded among high tech workers.
There has been much attention focused on the export of American jobs to cheaper labor markets overseas and the toll this has taken on the middle class. The corollary to the exportation of jobs is the importation of lower-wage workers to do the jobs that remain in this country.
Through a variety of legal and extra-legal means, American companies have been systematically replacing American workers with foreign workers who are nearly always paid less than those they replace. The L-1 visa system represents the latest legal loophole that is being exploited to the detriment of American workers… These foreign workers are paid only one third of what the laid off American workers had earned… American workers were even required to train the Indian workers who replaced them.
Dan Stein, Executive Director, Federation for American Immigration Reform
"Employers looking to slash costs have discovered that they can use firms that hire L-1s to dump high-paid Americans in favor of cheaper workers from abroad."
India News Network
The following is from a study conducted by Washtech.org:
How Well Educated Hard Working Americans are forced into Homelessness by H1b anti-union scab workers
Rennie Sawade, Washtech.org September 14, 2009 WashTech News
Many American IT workers are being forced out of their careers, while corporations continue to offshore jobs and hire non-immigrant guest workers on corporate Visas, such as the H-1B and L-1.
Some of these American IT workers are being forced into homelessness, due to the lack of an adequate social safety net in this country. One such homeless IT worker is Bruce Richall, an IT consultant in Connecticut. You can read his story on the BBC news site.
After his lay-off from a bank, he has been unable to find another job. After going through his savings, he was forced to leave his apartment. "I now sleep in the back of my car, while I wait for a bed to become available at the homeless shelter. I call it The Hotel Honda."
Another homeless IT worker, Rob, is blogging about his experiences.
January 2009 1,400 Microsoft Workers Replaced by Offshore Temps
Another American IT worker, Alice (not her real name), was laid of by Microsoft back in January. She worked on a team of 7, four of which (including the manager) are on guest-worker visas. She was the only one on her team that was affected by the lay-off. None of the foreign guest-workers were laid off. She also states in her testimony:
I am an American citizen, displaced Microsoft employee, and one of the MS1400 (1,400 workers laid off from Microsoft Corporation January 22, 2009). I have worked in the high tech industry for over 20 years and never been unemployed. In 1985, I completed my MBA in Computer Applications from New York University, attending graduate school nights and weekends while working full time. In 1992, I transitioned into my career into Software Sales and Marketing working for top firms including IBM and Microsoft. In 2004, I joined Microsoft as a Marketing Manager, and have been working in the same role as Product Manager, Microsoft Office since May 2006.
On January 22, 2009, I was the only person on a team of seven people laid off.
My team of seven, a supervisor and six Microsoft Office Product Managers, in similar roles, employed four guest workers. Three of these guest workers have worked in the United States less than one year. All guest workers on my team retained their jobs as full-time US employees of Microsoft Corporation. Despite my seniority, contributions, and qualifications, the management team of my organization, exclusively guest workers , chose to lay me off and retain less experienced, less qualified guest workers, including two L-visa guest workers in similar roles, each working in the United States less than six months.
Later I learned that my role had been split between a Microsoft full-time employee and contractor replacement(s). Microsoft has engaged Artech Information an H1-B outsourcing company, to replace parts of my role with a contractor.
Imagine my surprise, just three weeks after I was laid off, to receive an email and voice mail from Artech Info on February 12, 2009 with an urgent need to fill a contractor position at Microsoft for a Product Manager. The contractor job description - a watered down version of my former eliminated position!
The recruiter from Artech informed me 02/12/2009 that the maximum wage for the job was $32/hour. This wage, 50% lower than my salary one month earlier, is 63% lower than the 2007 median BLS (U.S. Bureau of Labor Statistics) wage for the job role, Marketing Manager. According to the BLS, there are an abundance of qualified Americans to fill these highly coveted roles. According to Artech, the lower wage was "due to economy". Sadly, my situation is not unique.
Alice was just notified a couple days ago that she does not qualify for the Emergency Extension of Unemployment Benefits. She was also just notified by her mortgage company that she does not qualify to have her mortgage renegotiated.
Here is another American High Tech Microsoft Worker:
I wish somebody could give me a good explanation as to how sending American jobs to India or giving American jobs to H1-B visa holders is helping the U.S. economy and American workers. Until you spend a day in my shoes or the shoes of another American citizen who lost his/her job to foreign workers, I ask you how you can do anything less than support the H1B and L1 Visa Reform Act. This is just my story, but there are millions more like it all across our country. Perhaps politicians should get down in the trenches with people like me; people who spent a lot of money and time to get college degrees; people who spent many years building upon their careers; people who have worked 60 hours or more a week for years in the hopes of "getting ahead." We are now sadly unemployed. We are the forgotten Americans who have been left behind to suffer while we continue to watch our fellow Americans losing their jobs to foreigners.
I have never been on welfare in my life, and it sickens me now that I must depend on it. But knowing I need to feed my children and keep a safe roof over their heads makes me do things I thought I'd never have to do in life. Goodbye, my pride.
This next article is from a website called Microsoft Tax Dodge:
Hypocritical, Tax-dodging Microsoft Supports Increased Sales Tax to Fund Higher Education
TechFlash reports that Microsoft's General Counsel Brad Smith has called for the Governor to end cuts to higher education and is supportive of an increase to our state's sales tax. Microsoft loves the sales tax because it's a regressive tax - meaning that the poor pay a higher percent of their income in taxes than the rich:
"People earning less than $20,000 annually pay 17.3 percent of family income toward sales and excise taxes and property taxes, the report said. People making between $99,000 and $198,000 each year pay 7.6 percent toward their tax bill. Meanwhile, people in the top 1 percent of earners – those making more than $537,000 a year – pay just 2.9 percent, the report said."
The Institute for Taxation and Economic Policy (ITEP) reports that Washington State already has the most regressive tax structure in the country. If it weren't for Microsoft's Nevada Tax Dodge and its lobbying effort, Washington State wouldn't have a budget deficit right now. Microsoft's geographic accounting practices are so deceptive that the ITEP had to exclude the company from its most recent Corporate Taxpayers and Tax Dodgers report:
"We [had] to leave out from the study companies whose geographic allocations were obviously ridiculous (e.g., almost all or even more than all of their pretax profits were reported as foreign, even though most of their revenues and assets were in the United States). Google and Microsoft are two examples of such apparently “liar companies” that we left out of the study. For such companies, it may be that they reported in their annual reports how they misallocated their profits on their tax returns, rather than where their profits were really earned."
The following website lists 666 pages of H1B permits for Washington State:
There are 30 permits per page for about 20,000 total permits over a 3 year period of time. Over half of these permits, or about 10,000 permits, are from Microsoft – again leading to the conclusion that Microsoft has about 20,000 H1B Employees – as well as an increasing number of L1 foreign employees working in Washington State. I have been told by Microsoft workers that some sections of Microsoft have less than 10% American workers still on their staff.
The outsourcing nightmare is still going on. This was posted on September 26, 2011:
HCL Technologies is going to develop and test software for customers including Microsoft and Boeing. HCL will outsource work from Boeing and Microsoft to it's offshore development centers in Hyderabad and Delhi. HCL this year has been scrutinized by USCIS for misusing the L1-B & H1-B visas. 90% of the HCL Redmond staff of 820 employees are on L1-B and they work out of the Microsoft facilities. A company spokesperson stated:
"Our strategy is to lower the prices and get the projects from Microsoft and hire people from India so we can still make profits." http://hclredmond.blogspot.com/2011_09_01_archive.html
Corporate profits grew 36.8 percent in 2010, the biggest gain since 1950, according to the latest report from the Bureau of Economic Analysis. In just the 4th Quarter of 2010, corporate profits reached $1.7 trillion – an increase of $38 billion over the Third Quarter of 2010. This growth in profits was concentrated primarily in banks and other financial corporations which saw their domestic profits increase by $58 billion.
Corporate profits are at record highs. We need to make sure some of that money comes back to be invested in our kids and our future.
- John Burbank, Economic Opportunity Institute
Note the above only represents Microsoft Cash Reserves. Their net worth (assets minus liabilities) is over $100 billion, as they also own several large buildings.
For nearly 12 years, Microsoft has failed to pay their fair share of State taxes. The total amount the legislature has allowed Microsoft to rob from our school children has been about $7 billion and is currently rising at a rate of one billion dollars per year. Thus, while Microsoft currently has $52 billion in cash sitting in the bank, if they had paid their fair share of State taxes like most other businesses in our State, they would only have $45 billion sitting in the bank – and our children would have had the benefit of national average school funding and national average class sizes – and our economy would have had the benefit of being able to hire 10,000 more teachers per year.
Who benefits from the Microsoft billion dollar tax break?
The Microsoft tax scam artificially inflates Microsoft earnings and stock prices by about 2%.
Below is a list of the Top 12 stockholders of Microsoft stock:
32% of all Microsoft stock is owned by two billionaires and ten wealthy Wall Street Corporations. Of course, artificially inflating the price of a stock mainly benefits those who SELL Microsoft stock. Since February 1, 2010, the biggest amount of Microsoft stock has mainly been sold by 2 people: Bill Gates sold 160 Million shares for $400 million dollars and Steve Ballmer sold 75 million shares for $200 million dollars. In short, the bulk of the benefit of the Microsoft Billion dollar tax break has gone to two billionaires.
Microsoft currently spends about $6 million per year buying off legislators and members of Congress in order to retain their billion dollar per year tax break. Thus for every dollar in contributions to politicians, Microsoft gets back about $200 in tax breaks. No wonder our elections are being sold to the highest bidder!
Corporations now spend millions of dollars every year buying elections for the same incumbents who give them BILLIONS in tax breaks!
“We're in the midst of a corporate crime wave.”
Ralph Nader June 2010
One million children in our State are being forced to endure the highest class sizes and the lowest school funding in the nation just so a couple of billionaires can buy bigger boats!
As just one example of how Microsoft costs Washington State Tax payers hundreds of millions of dollars, consider the following story
Internal Microsoft Document on HB 1487 Leaked
Monday, 29 June 2009
This highly controversial legislation, HB 1487, which goes into effect July 1st in Washington State, is just another example of a transnational corporation asserting its influence in our local government. This legislation was drawn up inside of Microsoft and sponsored by Representative Ross Hunter, a former manager at Microsoft.
According to this Seattle Times article, this legislation will cost the state hundreds of thousands of dollars in the short term and will continue to cost more in the years to come. While making deep cuts in education, this legislation passed by a wide margin. This clearly shows how Microsoft makes backroom deals with legislators with flawed judgment - and a capacity to ignore the majority they have pledged to serve.
"Rep. Ross Hunter pushed through legislation at Microsoft’s behest to extend in-state tuition rates to white collar professionals who are temporarily stationed at Microsoft on corporate visas –at the same time that Washington State lawmakers removed $1.5 billion from education, laid off 2500 teachers, [and] slashed health care." - Bright Future Jobs
Internal Microsoft Document
Microsoft Continues to Pursue In-State Tuition Bill (03/18/2008)
The Washington State Senate and House of Representatives Higher Education Committees recently voted on a bill aimed at broadening the definition of "resident student” in the state of Washington. This bill would have allowed non-immigrants in L-1, L-2, H-1B, H-4, or E-3 status to pay in-state tuition. While the bill will not become law this session. We believe it has a strong chance of future success.
Origins of The Idea: You?
Microsoft focused efforts to change this state law after receiving suggestions from our employees in our webcast on January 10th. Jack Krumholtz and Lydia Tamez promised to pursue this idea, and provide updates on the progress. Our webcasts on immigration issues provide an excellent opportunity not only for us to keep you informed about important policy developments but also for us to understand what issues are central to you and for us to gain the benefit of your ideas This is one example of how your ideas influence the direction of Microsoft’s efforts to change state laws on immigration.
Team Efforts at Microsoft to Pursue The Bill's Passage
Through the strong support of Microsoft’s State Government Relations Team, this bill was drafted and introduced in the state legislature in January 2008. On February 6 2008, Lydia Tamez, the Associate General Counsel for Microsoft Global Migration, testified before the Washington State Senate Committee on Higher Education. The bill easily passed the State Senate by a vote of 46-1 and then moved to the House of Representatives. On February 21, 2008, Lydia testified again, this time before Washington State House of Representatives Higher Education Committee, This committee passed the bill sending it on to the House Appropriations Committee. Microsoft is committed to pursuing this initiative vigorously. As always, we are grateful for the ideas you contribute, and we will keep you informed as we make progress toward making this in-state tuition idea a reality. A special word of thanks to Delee Shoemaker, Director of State Government Affairs, and Fred Humphries, Managing Director of State Government Affairs for all their efforts in the past two months in moving this bill forward!
More on the Microsoft Tax Scam…
H1B Visa Abuse Facts from Gaming the System
There is no hi tech worker shortfall. In fact, there are 2 new college graduates with a Hi Tech Bachelors and Master Degree each year for every new hi tech job each year. Thus, there is not a need for a single H1B visa worker. Yet despite the availability of American workers the amount of foreign workers has been allowed to increase by over 400% in the past 10 years.
There are now about 400,000 H1B visa holders in the US. Half work in the computer industry. Although law requires Bachelor Degree, less than Half have a Bachelor Degree. Hundreds of thousands of US workers have been displaced by cheaper foreign workers who are themselves abused in order to drive down wages in the US computer industry.
Many H1B workers are being paid only $10 an hour. In some cases H1B workers were paid only $18,000 for a year of work. But $13,000 of this was paid to the recruiter meaning only $5,000 went to the worker.
This is why there has been no substantial increase in wages at hi tech companies like Microsoft since 2000. One study found a 6% decrease in wages. Another study found H1B workers were paid an average of 30% less than comparable US workers. There are many cases of hi tech firms forcing American workers to train their replacements. Eventually these same jobs are outsourced overseas as these guest workers, trained by US computer programmers, take themselves and the job back to their home country.
In 2009, Senator Richard Durbin (D-IL) has called for reform of H-1B programs saying these visa programs are “plagued with fraud and abuse and are a vehicle for outsourcing that deprives qualified American workers of their jobs.”
No Jobs Means No Recovery
Even the current State Budget deficit of $5 billion is peanuts compared to the appalling $30 billion increase in corporate tax breaks in the past ten years. In fact, the majority of the decline in State revenue is not from the decline in sales taxes related to the recession. Instead, it is from the decline in sales taxes, property taxes and B & O taxes from corporate tax breaks.
We have already pointed out one glaring drawback of corporate tax breaks – namely that they do not actually create jobs. Instead, it is small businesses which create over 90% of all new jobs in our State. Small businesses are harmed by corporate tax breaks for their larger competitors because tax breaks create an unfair advantage for large corporations. Small businesses do best when there is a level playing field. Eliminating corporate tax breaks would therefore create more jobs.
According to a 2010 report by the US Commerce Department, over the last decade American multinational corporations (essentially all large American corporations) eliminated 2.9 million American jobs while adding 2.4 million jobs abroad.
Conclusion… Ignoring the Elephant in the Room
$4 billion… That's how much the state legislature cut just 7 months ago from health care, education, and other core services that support our communities -- the 99%. That's on top of billions in cuts already enacted since the recession began.
$0... That's how much lawmakers cut from tax breaks benefiting Wall Street Banks, large corporations, and the wealthiest 1%.
The REAL cause of our economic crisis is Out of Control tax breaks for the rich. Firing thousands of teachers will only make things worse. Raising the Sales Tax on poor and middle class families – who are struggling to stay in their homes and put food on the table - will only make things worse. The only path to recovery is a fair tax structure – including rolling back tax breaks for wealthy corporations.
"As the tax exemptions pile up, the cost is mounting, and our tax code looks more and more like a slice of Swiss cheese. The real question is whether each exemption is the best use of taxpayer money. It makes no sense to spend $5 million on an exemption that creates 100 jobs when it also means eliminating $5 million in funding for core services that leads to the loss of 1000 jobs."
Anne Martens, a spokesperson for the Economic Future Coalition, an alliance of more than 140 organizations across the state concerned about deep proposed budget cuts
The real problem in granting corporate welfare to multi-national corporations is that the money is taken out of State and thus acts as a drain on our economy. If we are going to grant tax exemptions, we should give it to small businesses which are more likely to invest the money in State than out of State.
Another objection is that corporations need the tax breaks to stay profitable. This is also not true. Both Boeing and Microsoft were making billions in profits in the years before the tax breaks. Even if these tax breaks were completely eliminated, both companies would still be making billions in profits. They both would still be among the richest corporations in the history of the world. In fact, since State taxes are deductible from federal taxes, requiring Boeing and Microsoft to pay taxes would hardly even reduce their profitability. Instead, it would simply amount to a transfer of a half a billion dollars from the federal tax rolls to the State tax rolls.
Other Drawbacks of Corporate Tax Breaks
Besides the fact that corporate welfare costs our State billions of dollars without creating jobs, there are several other glaring drawbacks of corporate tax breaks. These include:
1. Corporate Tax breaks are unconstitutional. If our State legislature was complying with its constitutional mandate to fully fund schools (including the construction of schools), and had a few billion dollars left over, it could be argued that it would be legal to pass out a few billion in corporate tax breaks (or better yet, lower the taxes on the rest of us). But the fact is that our State is 47th in the nation in school funding. We also have the highest class sizes in the nation. So protecting billions in corporate tax breaks, while cutting billions in school funding, is unconstitutional. The State Constitution is the highest law in our State. No one should support a system which is violation of the highest law in our State.
2. It is an unfair distribution of taxes. When corporations do not pay their fair share, everyone else has to pay more. For example, the property taxes on every homeowner in King County is $1,000 higher than it was just a few years ago. These extra dollars do not go to pay for schools or social services. Instead, this money goes to pay for tax breaks for the richest corporations in the history of our planet. What would benefit our economy is if every homeowner had an extra thousand dollars to spend on local businesses every year.
3. There are no strings attached. Because there are no strings attached, corporations use the money for the exact opposite of the intended purpose. For example, Boeing has received more than $10 billion in tax breaks since 2003. What did they do with this money? They used it to build a plant in South Carolina to ship thousands of jobs out of our State. We as Washington State tax payers paid to build the non-union plant in South Carolina.
4. State tax breaks do not even benefit corporations that much. If corporations were required to pay State taxes, they could deduct their State taxes from their federal taxes.
5. Corporate tax breaks harm schools and harm children. Our State used to be 11th in the nation in school funding. Yet now we are 47th. The only thing that has changed is the huge increase in corporate tax breaks. It has devastated funding for our public schools. Our children deserve a fair chance at a successful future. The only way that will happen is to put an end to unfair corporate tax breaks and return funding to our public schools.
6. Corporate tax breaks corrupt our Democracy. Because corporations are able to feed unlimited funds to their corporate candidates, elections wind up being sold to the highest (most corrupt) bidder. There is not a level playing field when one candidate can outspend another by more than 20 to 1. In case you are wondering why there is so much corruption in Olympia and DC, it is because of the influence corporate money has on campaigns. Get rid of corporate tax breaks and you get rid of the incentive to bribe politicians.
7. Corporate tax breaks led to our current economic crash. Corporations took over Congress in the 1990’s. The first thing they did was pass deregulation of corporations – especially deregulation of banks and oil companies. This led to a lot of illegal corporate shenanigans (such as the Enron scandal and Wall Street derivative speculation). Bailing out these banks and oil companies has cost tax payers more than $7 trillion and caused a collapse in home prices and millions of lost jobs which is basically why were are now facing the worst financial crisis since the Great Depression. The harm that the recent rise in corporate tax breaks have inflicted on our economy has led many to believe that there should be an outright ban on corporate tax breaks.
8. Corporate Tax Breaks are used by billionaires to destroy our public schools.
Bill Gates has gotten billions in tax breaks and spent much of this money, through the Gates Foundation, attacking public schools and trying to privatize them.
“Bill Gates wants to tell us how to teach, but I just want him and Microsoft to pay their fair share of taxes.” Sandy Cioffi, Instructor at Seattle Central Community College.
Giving Away Billions in Tax Breaks to Wealthy Corporations is a Failed Economic PolicyOur poor and middle class are suffering from the worst economy since the Great Depression. The Economic Crisis was created by wealthy reckless and irresponsible corporations who are now making record profits from obscene State and federal corporate tax breaks. The paramount duty of our State legislature should be to fully fund public schools. Rolling back corporate tax breaks would not only meet this Constitutional Duty but also ignite the economy, put people back to work, preserve opportunities to access high quality affordable education and build thriving prosperous local communities by reducing the tax burden on the poor, middle class and small businesses.
Restoring a Fair and Adequate Revenue System
We need an adequate, sustainable, and fair tax system to make restore national average school funding and create public and private sector jobs. We can restore this system by repealing all corporate tax exemptions passed since 1996. This would also create a fair and level playing field as wealthy corporations would have to pay the same tax rates as local small businesses.
Our families, our small businesses, our communities and our State are facing the worst financial crisis since the Great Depression. Currently nearly one million people are out of work in our State. Hundreds of thousands have exhausted their unemployment insurance benefits. Over one million people lack adequate health care - including hundreds of thousands of children. Tens of thousands of homeowners are behind on their payments and about to lose their homes.
Even those who still have their jobs are suffering. Heath care costs have tripled due to deregulation of HMO’s. Heating costs have tripled due to deregulation of electric companies. Transportation costs have doubled due to deregulation of oil companies. Housing costs have doubled due to deregulation of banks. While corporate profits have skyrocketed, middle class wages have fallen to the point where middle class families – even those with full time jobs – can no longer make ends meet and are forced to take out ever increasing debt just to make their monthly payments.
The future of one million children has been placed at risk by forcing them to attend the most under-funded and overcrowded schools in America. Over 100,000 children are spending their school days in particle board boxes. Half the public schools in our State do not even meet safe drinking water standards. Our school infra-structure has been so badly under-funded in the past 10 years that we now face a $10 billion dollar school construction and repair backlog. This includes the State’s failure to help us build an urgently needed high school in North Bend – the first time in the 100 year history of our State that the legislature refused to help a community build a high school.
Meanwhile tax breaks for millionaires have skyrocketed during the past 10 years to $50 billion dollars per year. A national study of the tax systems in all 50 States concluded that Washington State has the most unfair tax system in the nation. Our middle class and small businesses pay some of the highest State taxes in the nation. Meanwhile, millionaires and major corporations pay some of the lowest State taxes in the nation. Our children must suffer from grossly under-funded schools and the disabled must do without adequate health care just so millionaires can buy bigger boats. As a result of tax breaks for the rich, the gap between the rich and everyone else is greater than at any time since 1929. The richest one percent now own more than the bottom 90%.
We need to address the real cause of our nation’s economic collapse if we are ever going to restore economic prosperity. The corporate controlled media has blamed the collapse on the middle class over-extending their credit. But the media ignores what forced our middle class to over extend their credit. The truth is that our current economic crisis is really due to a war waged by greedy corporate executives against our middle class during the past ten years. Huge price increases in everything from health care to electricity were made possible by corrupt politicians being paid off by corporate lobbyists who arranged the deregulation of banks, oil companies and health insurance middle men. When the financial burden on our middle class became too great, they suddenly could no longer pay their bills and they suddenly stopped buying.
The bankrupting of our middle class economic engine led to a rapid rise in unemployment which led us to where we are today. With millions of people out of work and no hope for even getting a job. So what really caused our economic crisis was the failure of our State and national governments to regulate the greed of major corporations. This recession is not the fault of our middle class. It is the fault of political corruption on a monumental scale.
Both parties argued that giving corporations whatever they wanted was good for the economy because the benefits would somehow “trickle down” to the rest of us. Instead, as one Boeing lobbyist put it, big business learned how to turn our government into a “CASH COW.” Trickle Down Economics was simply corporate welfare on a massive scale. Instead of being good for the economy, because it bankrupted our middle class, it destroyed our economy.
Tax breaks for millionaires were irresponsible. For every billion dollars in tax breaks we give millionaires, we take a billion dollars out of the economy and we lose 10,000 to 20,000 jobs. Requiring wealthy corporations to pay their fair share of State taxes will provide over 100,000 new jobs. This is the whole idea behind bottom up economics. It is not about the redistribution of wealth, but the fair distribution of wealth.
Instead of cutting health care for kids, let’s cut welfare programs for millionaires. Instead of closing public schools, let’s close this tax loophole for wealthy corporations. Rather than adding yet another financial burden to the poor and middle class, we should require those who are currently not paying their fair share of State taxes to contribute to solving the State’s financial problems. Instead of cutting important social programs, let’s start cutting tax breaks for billionaires.
There is a better alternative. All we need to do is roll back tax breaks to what they were in 1996. This would generate $10 billion per year which would allow us to not only save the jobs of thousands of teachers, but actually hire back teachers and restore school funding in our State to the national average – as well as cut the unfair State Sales tax in half.
Cut Essential Programs and Raise Taxes on the Poor and Middle Class – OR Cut Tax breaks for wealthy corporations? That is the choice our legislature must make.
Special tax expenditures cost Washingtonians billions of dollars every year. That’s money that should be going healthcare, education and other essential public services.
Sincerely, David Spring M.Ed. Director, Fair School Funding Coalition.org
David Spring is the Director of the Fair School Funding Coalition, a non-profit, non-partisan educational organization dedicated to restoring school funding to the national average.
Our websites include fairschoolfundingcoalition.org, realwashingtonbudget.info and coalitiontocreatejobsnow.org. For more information about how to restore school funding and rebuild our economy, please visit the above websites.