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Plugging offshore tax loopholes would help in US budget crisis
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ELECTED leaders recently faced a budget deadline that ultimately led to a partial US government shutdown, even after the Treasury Department repeatedly warned Congress to raise America’s limit on borrowing.
Yet a crucial fact is missing from this conversation on the debt ceiling and the budget: amid all the hand-wringing about spending and debt, we continue to tolerate offshore tax haven abuse that costs us an estimated US$150 billion in annual revenue.
By using accounting tricks and taking advantage of our inefficient and loophole-ridden tax code, many large US-based multinational corporations make their profits appear to be generated offshore, thereby avoiding paying US taxes.
Some glaring examples: Microsoft keeps about US$60 billion offshore, on which it would owe nearly US$20 billion in US taxes; Pfizer uses accounting gimmicks to shift the location of taxable profits offshore, allowing the company to report no federal taxable income in the US in five years; and Google achieved an effective tax rate of just 2.4 percent on its overseas profits between 2008 and 2010, according to a a report by the nonprofit New Jersey Public Interest Research Group (NJ PIRG0).
This corporate abuse of offshore tax havens allows corporations to avoid an estimated US$90 billion in federal income taxes every year, plus US$40-70 billion lost to wealthy individuals’ shifting money offshore.
This tax dodging also deprives state governments of billions of dollars in revenue. Altogether, tax havens cost state governments nearly US$40 billion in lost revenue in 2011. In New Jersey alone, the state lost over US$2.8 billion in state revenue due to offshore tax loopholes.
Clear solution
Fortunately, Democratic Senator Carl Levin from Michigan, along with several Democratic co-sponsors, have introduced legislation that would close the most deplorable loopholes and save taxpayers US$200 billion over 10 years.
When wealthy individuals and large corporations abuse offshore tax havens, Americans and small businesses are forced to shoulder the burden. Every dollar that corporations avoid in taxes is balanced by average citizens paying higher taxes and coping with cuts to public programs, not to mention a higher federal deficit.
The US$150 billion the Americans lose in tax havens a year would be more than enough to cover across-the-board spending cuts if a government shutdown were to occur. It would also be enough to provide Pell grants to 10 million students for four years of college; guarantee loans for half a million small businesses; or revamp America’s aging transportation infrastructure by building 15 commuter rail lines, 50 light rail transit lines, and more than 800 bus rapid transit lines.
With Congress facing an uphill battle following the government shutdown, surely closing tax havens should be the first step. Levin’s bill provides with a clear solution to both problems.
And even if America didn’t face these circumstances, the Stop Tax Haven Abuse Act puts the public before special interests. As Congress faces the latest round of budget battles, New Jersey Senator Robert Menendez should support the Stop Tax Haven Abuse Act, and stand with the public, not big corporations lobbying to protect their tax breaks.
Jen Kim is State Director of the New Jersey Public Interest Research Group (NJ PIRG). Copyright: American Forum.
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