I have been a strong supporter of targeted tax incentives that encourage hiring or provide small businesses the resources they need to expand.
Congress, however, should not tolerate the loopholes that corporations exploit to avoid paying taxes. These schemes increase corporate profits at the expense of the average taxpayer.
They reduce the resources available to provide our nation’s veterans with the support that they deserve. They hurt our ability to make job-creating investments rebuilding our roads and bridges. And they make it harder to balance our federal budget.
The average Mainer is not making billions in profits every year. The average Maine small business does not have a team of lawyers to reduce its tax liability to zero. Why should Congress treat massive, connected companies so differently?
That is why I am fighting to close a corporate tax loophole known as the Reverse Morris Trust (RMT), which is a complicated tax scheme that lets a company spin off and sell assets without paying taxes.
In the past, some large corporations have even used this method to seek buyers for their less productive assets simply to avoid taxes. And in some cases, the company purchasing these sometimes-toxic assets is loaded with debt and lacks the capital to maintain and invest in quality service.
Meanwhile, the corporation selling these assets walks off with a bundle of tax-free profits.
The result is a bad deal for workers, taxpayers and communities.
In Maine, we have seen the negative consequences of these types of deals firsthand. In 2007, Verizon spun off its New England wireline operations and merged them with the much-smaller FairPoint Communications.
Verizon made a profit of approximately $2.3 billion, unloaded $1.7 billion in debt on FairPoint, and paid no taxes on the deal. In 2009, FairPoint was forced to file for Chapter 11 bankruptcy and outline a restructuring plan to reduce the company’s debt by $1.7 billion. Earlier this year, FairPoint announced nearly 400 job cuts throughout New England. More layoffs are expected.
Unfortunately, Verizon is not the only company to take advantage of these tax gimmicks. Proctor and Gamble took advantage of RMT loopholes to the tune of $2 billion in lost federal tax revenues and $200 million in lost state tax revenues over the past decade. In 2006, the Walt Disney Co. used the RMT to unload its ABC Radio properties, including 22 radio stations and the ABC Radio Network, to Citadel Broadcasting, which filed for Chapter 11 bankruptcy by December 2009.
In 2010, the House and the Senate considered two separate bills that both included provisions ending the RMT. While one passed in the House, the other failed to receive the 60 votes needed for consideration in the Senate, falling short by just one vote. Earlier this year, I joined members of Congress from across the country to reintroduce legislation to close this loophole and will continue to work to ensure that it does not inflict additional harm on consumers or workers.
There is no reason to continue incentivizing the kinds of loopholes that allow companies to avoid paying their fair share on deals that often can end so poorly. Congress should close the RMT loophole before another company has an opportunity to exploit it. This would not only be good for taxpayers, but it just makes commonsense, especially at a time we need to create jobs and reduce our national debt.
Democrat Mike Michaud is Maine’s 2nd District representative to the U.S. House of Representatives.