It’s common knowledge that large corporations with resources legally evade taxes using subsidiaries in countries with lower tax rates. Another method of legally reducing tax liability is to pay employees millions of dollars. That’s how many top companies managed to reduce their tax liability to zero.
According to a story by USA Today, an analysis of data from S&P Capital IQ shows that 20 large companies with billions of dollars in annual earnings reduced their taxes to zero. This was made possible by paying their CEO’s hefty salaries that ran into the millions. These companies exploited a loophole in the tax code and paid the government no taxes while they made billions.
There are several methods for legally evading taxes. Tax inversions were recently in the news because it was discovered that many corporations merged with foreign companies to avoid paying taxes in the U.S. Tax inversions are another example of corporations using loopholes in the tax code to avoid liabilities.
There is little the government can do to punish those that evade taxes legally. The only solution to the problem is to fix the loopholes that allow legal tax evasion. Changing a few rules may not be sufficient; it’s necessary to completely overhaul the tax code and make it simpler, shorter and more effective.