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Jon Greenberg
By Jon Greenberg April 11, 2016

Sanders: U.S. multinationals would owe $620 billion on overseas profits

Getting companies to pay more in taxes is one of the pillars of Bernie Sanders’ plans for America. The extra revenue plays a key role in everything from universal health care, to tuition-free college, to rebuilding the nation’s aging water mains, bridges and highways.

How much does he think is there?

"The largest U.S. companies would owe $620 billion in U.S. taxes on the cash they store in tax havens," Sanders tweeted April 6, 2016.

That’s a fair chunk of change, and we thought we’d see if it held up. By the way, there’s no single definition of a tax haven. The term covers both profits from overseas subsidiaries and the use of offshore accounts in places like Bermuda. The common thread is money is booked in places with lower taxes than the United States.

The Sanders campaign directed us to a joint study from Citizens for Tax Justice and US PIRG, both left-leaning organizations. Their analysis began with the more than $2.1 trillion that Fortune 500 companies are holding in accumulated profits offshore for tax purposes.

When the foreign subsidiary of a U.S. multinational turns a profit, the money is taxed at the rate where the subsidiary is based. Uncle Sam doesn’t get a penny until the multinational brings the money home. That gets a little confusing because the money might actually be in the United States, but it isn’t on the books of the U.S. parent.

In any event, for tax purposes, most of those funds are not formally repatriated or brought back to the United States. The logic is simple: Why pay a higher rate in the United States, formally as high as 35 percent, when you might be paying a fifth that much in a foreign country, such as Ireland?

The Citizens for Tax Justice/US PIRG analysts looked at the 57 corporations that actually told regulators how big their tax bill would be if they brought the money home.

"These 57 companies would owe $184.4 billion in additional federal taxes," the report said.

The analysts made some assumptions and applied the results to the companies that didn’t release this information. The total for all Fortune 500 companies combined? "They would collectively owe $620 billion in additional federal taxes."

We asked independent tax scholars what they thought of that estimate. Some of them said it was in the ballpark.

Richard Harvey, a former partner at the accounting firm Pricewaterhouse Coopers and now at Villanova School of Law, said Sanders might actually be underestimating. Harvey pointed to the foreign earnings that multinationals report as "indefinitely reinvested." Officially, the total is about $2.3 trillion. But Harvey thinks that overlooks a lot of cash.

"The total unrepatriated foreign earnings would be even higher because companies like Apple and Pfizer do not label all undistributed foreign earnings as ‘indefinitely reinvested,’ " Harvey said. "If one assumes that U.S. multinational corporations have approximately $2.5 trillion to $3 trillion of unrepatriated foreign earnings, and the average tax rate on most undistributed foreign earnings is less than 10 percent (in many cases close to 0 percent), then a $620 billion estimate is very reasonable, and may be low."

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Edward Kleinbard, professor of law at the University of Southern California and a former chief of staff at the U.S. Congress' Joint Committee on Taxation, took a different approach, and reached approximately the same conclusion.

Kleinbard took the Joint Committee on Taxation’s estimate of how much revenue would come from a one-time 14 percent tax on those foreign earnings kept overseas. This is in fact what President Barack Obama has proposed in his latest budget. The net haul from that would be about $195 billion.

Using that figure, Kleinbard estimated how much would come in if the rate were 35 percent, rather than 14 percent.

"You get to $488 billion," he said. "That’s not perfect, because of how foreign tax credits (offsets to U.S. taxes) would have to be handled, but it’s the right ballpark."

That’s less than the $620 billion Sanders cited, but as Kleinbard put it, "it's a honkin' big number."

The banking giant Credit Suisse estimated the total new revenues at $533 billion.

Edmund Outslay, professor of taxation at Michigan State University, thinks Sanders overshot the mark.

Outslay told PolitiFact that he questions a key assumption in the study behind Sanders’ number. The study estimates an average tax rate of 6 percent that all Fortune 500 companies are paying overseas today. Because any foreign tax bill is deducted from what a firm owes Washington, the lower the foreign tax rate, the higher the potential revenues for the United States.

Outslay thinks 6 percent is unrealistic.

"Some studies I have seen estimate a foreign tax rate of about 16.5 percent," Outslay said. "If this number is more accurate, the total tax to be gained (would be) $550 billion. At 25 percent, the net U.S. tax would only be $320 billion."

Outslay himself leans more toward a $300 billion figure. In addition to thinking multinationals are paying a higher rate overseas, he also said "in most cases, the foreign earnings are actually invested in bricks and mortar." Those dollars are not cash in the way Sanders talked about this. How the IRS would treat that money is unclear.

All this leaves us with a range of estimates of the potential tax revenues, ranging from about $300 billion (Outslay), to $490 billion (Kleinbard), to $550 billion (Credit Suisse), to over $620 billion (Harvey).

Our ruling

Sanders said that if American multinational corporations had to pay taxes on the profits they made overseas, they would owe $620 billion. This is at the high end of the estimates we collected. Sanders also described the overseas holdings as cash. According to one expert we reached, a lot of that money might be invested in factories and other hard infrastructure and might not be available for tax collections.

Still, the mid-range estimate from credible sources is in the $500 billion to $550 billion range. All the numbers cited were relatively high. We rate Sanders’ estimate Mostly True.

Our Sources

Bernie Sanders, tweet, April 6, 2015

Citizens for Tax Justice and US PIRG, Offshore shell games, 2015

Sanders for President, Making the Wealthy, Wall Street, and Large Corporations Pay their Fair Share

Audit Analytics, Untaxed Foreign Earnings top $2.3 Trillion in 2014, April 30, 2015

Joint Committee on Taxation, Estimated budget effects of the revenue provisions contained in the President’s fiscal year 2017 budget proposal, March 24, 2016

Credit Suisse, Parking A-Lot Overseas, March 17, 2015

Email interview, Edward Kleinbard, professor of law at the University of Southern California, April 7, 2016

Email interview, Gary McGill, director, Fisher School of Accounting, University of Florida, April 6, 2016

Email interview, Richard Harvey, Richard Harvey, professor of practice, Villanova University School of Law and Graduate Tax Program, April 7, 2016

Email interview, Edmund Outslay, professor of taxation, Michigan State University, April 8, 2016

Email interview, Warren Gunnels, spokesman, Sanders for President, April 6, 2016


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