CHARLESTON, W.Va. -- Nearly everyone will avoid paying taxes, if it's legal to do so. But billionaires and international corporations -- with staffs of high-paid law experts -- are grandmasters of such evasion.
Apple dodged an estimated $2.4 billion in federal income tax last year by funneling profits and orders to low-tax places, a New York Times analysis says. Apple paid a tax rate of just 9.8 percent, merely one-third the rate paid by many middle-class families. Those families are forced to make up the shortfall caused by Apple's avoidance.
How does it work? Here's a state-level gimmick:
Apple is based in California, where the state corporate income tax is 8.84 percent. But Apple diverts profits to a dummy office 200 miles away in Nevada, which has no state income tax. Apple is expected to clear more than $40 billion profit this year. By using the phony Nevada office, savings will be gigantic. Other California taxpayers must make up the loss.
Internationally, different strategies are employed. The newspaper explained:
"Apple was a pioneer of an accounting technique known as the 'Double Irish with a Dutch Sandwich,' which reduces taxes by routing profits through Irish subsidiaries and the Netherlands and then to the Caribbean. Today, that tactic is used by hundreds of other corporations."
The Times says computer-based technology corporations "including Apple, Google, Yahoo and Dell" pay just two-thirds the tax rate of other large U.S. businesses, because they have fewer fixed factories and facilities. Cyber firms easily can divert assets electronically all over the world.
Republican presidential frontrunner Mitt Romney funnels vast sums to tax shelters in the Cayman Islands, minimizing his federal income tax and leaving other Americans to make up the U.S. loss. President Obama sometimes sneers at a Cayman Islands building "that houses supposedly 12,000 U.S.-based corporations" -- but the offices are just mailboxes, enabling the firms to duck taxes.
Altogether, an estimated $100 billion in U.S. tax is avoided by such gimmicks. Sen. Jay Rockefeller, D-W.Va., protested in Charleston last year that Democrats in Congress would like to revise laws to recoup some of this loss -- but the Republican-controlled House would stymie the reform.
Good news: Mountain State corporations apparently can't funnel profits to offices in no-tax states, to elude West Virginia's state income tax, as Apple does in California. Four years ago, while reducing the corporate tax rate, the Legislature passed a "combined reporting" law to prevent it.
We hope this year's election increases Democratic power on Capitol Hill, and legal tax-ducking can be curtailed.