Is It Patriotic To Avoid Taxes?

A Bigger Tax Bill For Google Helps Neither People, Nor Profits

By Craig Schlesinger

It’s not uncommon to hear populist cries for companies operating under foreign subsidiaries to pay their “share” in taxes or even repatriate assets. What’s extremely rare, however, is a company’s own shareholders demanding they cough up a sizeable chunk of change to Uncle Sam. After all, such an action will ultimately decrease the company’s net asset value, thus penalizing the shareholders themselves.So who would insist on such shenanigans? A faction of Google stockholders.*

At the annual meeting of Google Inc. shareholders, several co-filers, led by the Domini Social Equity Fund, submitted a proposal requesting that the company’s board of directors “adopt a set of principles to address the impact of Google’s tax strategies on society.” Although the actual proposal states that “this is not a vote on tax reform, or how much tax Google should pay,” it goes on to list the following as grounds for the proposal itself:

• Corporate tax avoidance threatens economic growth and innovation

• Even if they are within the law, aggressive tax minimization approaches pose regulatory, reputational and financial risks.

• Other companies have adopted tax policy principles.

• Google’s tax strategy should be consistent with its stated objectives and policies on social and environmental sustainability.

The consumer group SumOfUs, whose slogan is “People not profits,” also filed an online petition seeking 150,000 signatures, claiming that Google owes $2 billion in taxes worldwide. Marginalizing the importance of the profit incentive undermines the value that Google and other businesses provide. It also overlooks the fact that these dubious profits are used to create jobs, fund research, spur innovation, and generally increase the quality of life for the “people” that SumOfUs seem so concerned about.

While the faction of Google shareholders calling for the company to pay more taxes surely believe themselves to be well intended, they couldn’t be operating further from reality. Corporate taxation itself is one the largest, if not the largest, threat to economic growth and innovation. With the United States currently boasting one of the highest corporate income tax rates in the world, it’s easy to understand why so many companies flee American shores in search of tax shelters – one of the most basic laws of economics is that when you tax something, you’ll inevitably get less of that something.

Moreover, economist Steve Horwitz points out that a tax on a corporation is not the same as a tax on the wealthy. Individuals end up paying these corporate taxes regardless of wealth, with the working class bearing the brunt in the form of lower wages, higher priced consumer goods, and retirement portfolios of lesser value. Corporate taxes also encourage firms to waste resources on tax avoidance and utilize debt financing instead of equity as a means of decreasing tax liabilities, making the companies riskier.

Tax minimization posing regulatory, reputational, and financial risks is a dubious notion at best. Tax codes exist to subsidize an entire industry whose preoccupation is tax minimization. Google’s significant resources allow them to both comply with the law and achieve minimum tax liability. Simply because other companies, like eBay, have adopted tax policy principles and cost their shareholders billions of dollars, doesn’t make it a smart maneuver. It seems as though Google shareholders have forgotten the “if everybody jumped off of a bridge” quip.

Would you toss half of your company’s annual profits off of a bridge?

But the real knee-slapping dose of irony comes in the assertion that Google’s tax strategy should be consistent with its social and environmental objectives. If the message from this faction of Google shareholders and SumOfUs is that paying taxes is somehow patriotic, perhaps it’s even more patriotic to avoid them. By insisting that Google pay more taxes to the federal government, this faction of shareholders is indeed saying that Google is in favor, or should be in favor, of:

• Countless undeclared, open-ended wars

• Subsidizing big business to the detriment of the little guy

• Prosecuting a drug war that adversely affects poor minorities

• NSA spying illegally on Americans

• The list can go on for miles. Is this really the type of social and environmental construct that Google or its shareholder have such strong feelings about?

*I own Google stock and don’t want them to pay taxes, ever. In fact, I’ll be submitting a proposal to redeem every penny of tax they’ve ever paid.