U.S. companies given Export-Import Bank subsidies keep profits offshore, skirt taxes

September 10, 2015


U.S. companies that benefited from more than $65 billion in taxpayer-backed loan guarantees have kept nearly $458 billion in profits offshore — avoiding paying billions in taxes to the government that helps them sell their goods overseas at a competitive rate, a Watchdog.org investigation found.

The tabulation was computed by Watchdog.org using a variety of databases from the Export-Import Bank, the Institute on Taxation and Economic Policy and through corporate filings. The research concluded 50 companies made billions of dollars in exports using bank guarantees yet kept nearly half a trillion dollars offshore and away from the Internal Revenue Service.

The offshore proceeds of the companies benefiting from the bank, if taxed at the 35 percent corporate tax, would have contributed as much as $160 billion to U.S. coffers between 2012 and 2014, the analysis shows.

Matt Gardner, the executive director of the Institute on Taxation and Economic Policy, said companies that are both benefiting from federally backed loans and who are keeping some of their profits offshore are shortchanging U.S. taxpayers.

“It’s pretty ludicrous that the federal government would subsidize any company engaging in this kind of tax avoidance,” he said. “But it’s not surprising, because the way the federal government and Congress spend money and conduct the tax system are basically disconnected. They don’t talk to each other.”

The 71-year-old Ex-Im Bank mostly guarantees loans for private lenders or government borrowers for foreign entities who want to buy products built in the United States. Many U.S. companies benefit from these loans because its their products being purchased by these entities with the government’s help, but the bank’s future is in doubt as congressional opponents on Capitol Hill accuse it of practicing “corporate welfare” and have vowed to block its lapsed reauthorization this fall.

U.S. companies don’t always return the favor to the U.S. government when helped by the bank. At least some of what they earn offshore they keep offshore.

General Electric Co. and its subsidiaries exported nearly $5 billion worth of products since 2006 using Ex-Im guarantees. In the past three years, the company has kept nearly $120 billion in profits offshore, corporate records and the ITEP database show. That’s more than twice as much deferred taxes as any other company that received Ex-Im guarantees, databases show.

General Electric spokeswoman Meghan Thurlow declined an interview request but provided a statement, saying the company pays $1 billion in federal, state and local taxes as well as U.S. income taxes.

“We support corporate tax reform, even if that means higher taxes for GE, and support renewing the U.S. Export-Import Bank because both will help us compete around the world and create more jobs at home,” the statement said.

However, an analysis of Securities and Exchange Commission records by Citizens for Tax Justice, an advocacy and lobbying think tank, determined GE’s effective state income tax rate was less than 2 percent over the past five years, with no state taxes paid in 2010 and 2014.

In another example, Boeing Co., the largest U.S. exporter of manufactured products, received $57 billion in taxpayer-backed loan guarantees since 2006, but has kept $800 million in corporate funds offshore, avoiding U.S. taxes.

Boeing spokesman Tim Neale said the company isn’t improperly dodging U.S. taxes.

“The $800 million you asked about represents the total accumulated earnings of Boeing-owned subsidiaries in several other countries,” he wrote in an email. “We have not repatriated the earnings (and therefore paid U.S. taxes on them) because we have, or soon expect to, reinvest the money in the subsidiaries that earned these profits.”

But ITEP’s Mr. Gardner argues those profits should be repatriated, taxed by the IRS, then used to invest.

“There’s a degree of a double standard when it comes to corporate welfare,” Mr. Gardner said, adding Ex-Im Bank is just one of several government programs where companies have benefited by keeping their profits abroad. “Why aren’t the people who are critics of subsidies also asking the same tough questions of [these] lavish giveaways?”

Many beneficiaries

GE and Boeing aren’t isolated examples.

Exxon-Mobil and its subsidiaries exported $2.5 billion using Ex-Im Bank guarantees but kept $51 billion offshore. Caterpillar benefits from $1 billion in taxpayer guarantees but made sure $18 billion was offshore and not subject to U.S. coffers.

Caterpillar declined to comment.

Exxon is one of the largest taxpayers in the United States, and the company doesn’t expect a significant tax savings from its offshore proceeds, said spokesman Scott Silvestri.

“ExxonMobil strictly follows all applicable regulations and laws and is current on all tax returns and payments,” he wrote in an email exchange, adding that included sales, property and income taxes. “Over the past five years (2010 to 2014), the company’s total U.S. tax expense was $54 billion, which is $8.8 billion more than the company earned in the U.S. during the same period.”

Ex-Im Bank spokesman Lawton King declined to comment on how some U.S. companies that benefit from the bank loans also are shielding corporate proceeds from the IRS.

While ITEP’s Mr. Gardner suggested crony capitalism may be to blame, other experts say the United States corporate tax system is to blame for inducing companies not to repatriate their earnings. It’s cheaper to keep proceeds overseas where corporate tax rates can be a third or less of the 35 percent U.S. corporate tax rate.

“Companies would love to bring back some of this money, quite frankly, but it’s just too expensive,” said Sharon Lassar, a professor in the accounting school at University of Denver’s Daniels College of Business. “That’s a lot of tax to be paid just to get use of your income when you’re a global company, and there are other places you could use that income.”

Diane Katz, a senior fellow at The Heritage Foundation who studies the Ex-Im Bank, said it’s not clear the money these companies generate offshore is directly tied to Ex-Im loan guarantees, weakening the crony capitalism arguments. Additionally, because these offshore funds are often reinvested, the American worker may still ultimately benefit.

The funds are “being put to use,” Ms. Katz said. Corporations “don’t just sit on it. They want the money to work by reinvesting in operations, and there is a benefit to the U.S. or they repatriate it.”

Ex-Im Bank’s Mr. King said U.S. taxpayers are not bearing the costs of the Ex-Im Bank guarantees.

“First thing — it’s not a subsidy, and we charge for it,” he said in a brief phone exchange. “That’s why the bank turns a profit.”

Bank officials tout that Ex-Im has had annual surpluses since 2008 and contributed $675 million to the U.S. Treasury last year.

Budgeting battle

But like much of the budgeting in Washington, D.C., it gets complicated.

The Congressional Budget Office contends the Ex-Im Bank’s surpluses are the result of the accounting method the bank uses and would disappear — or require a taxpayer subsidy — if the bank used a more appropriate accounting standard.

The bank’s own accounting projects a surplus of about $14 billion through the next decade. However, former CBO director Douglas W. Elmendorf told Congress last year that the Ex-Im Bank will more likely lose $2 billion in the same period using the CBO’s method of accounting.

Ex-Im Bank has been a source of controversy this summer, opening a rift between tea party-backed Republicans who are fighting to close the bank and establishment Republicans who say Ex-Im helps keep U.S. companies competitive in the global economy.

Major business groups, including the U.S. Chamber of Commerce and the National Association of Manufacturers, are strong backers of the bank, saying the country’s biggest trading rivals offer the same kinds of subsidized financing to their companies.

The House blocked reauthorization this summer, which stopped any new loan guarantees. But the bank retained enough funding to continue basic operations.