Happy Tax Day! Here’s something to think about when rushing to meet tonight’s tax filing deadline: The federal and state government loses more than $180 billion in revenue every year to corporations and wealthy people who shelter their money in offshore tax havens. To put that in context, every U.S. taxpayer would have to slap an extra $1,259 on their tax bill this year in order to make up for that lost revenue.
That’s according to a new report released by the U.S. Public Interest Research Group –a Boston-based firm that advocates for tax reform. The group says more than $150 billion in federal revenue and $34 billion in state revenue is lost every year to major corporations and wealthy people that stash their cash offshore in order to skirt hefty U.S. tax bills. PIRG notes that corporations account for about $110 billion of the total lost revenue—with wealthy individuals making up the rest.
Under current law, corporations are not required to pay U.S. income tax on most of their profits made overseas unless they bring that money into the United States. This loophole allows companies to set up subsidiaries in low-tax countries and store their profits there. A report by Audit Analytics, found that the total of offshore earnings was up 93 percent between 2008 and 2013, Reuters reported.
General Electric manages to avoid paying taxes on nearly $110 billion it has parked offshore within 18 different subsidiaries. Likewise, Microsoft doesn’t pay U.S. taxes on the $76.4 billion it stores in five tax haven subsidies around the world. PIRG notes that if the software behemoth brought that money home, it would owe about $24.4 billion in U.S. taxes.
“Tax haven abusers benefit from America’s markets, public infrastructure, educated workforce, security and rule of law -– all supported in one way or another by tax dollars –but they avoid paying for these benefits,” PIRG said in the report. “Instead, ordinary taxpayers end up picking up the tab, either in the form of higher taxes, cuts to public spending priorities, or increases to the federal debt,” it said.
The report was released as tax reform advocates pressure Congress to do away with the very loopholes that companies have used to pay lower, or in some cases, no state or federal income taxes. Pfizer—the world’s largest drug company, paid no U.S. income taxes between 2010 and 2012—since it reported losses in the U.S. The company stores about $69 billion in 128 offshore subsidiaries, the report noted.
Though most companies are still paying some taxes, complex tax tricks and loopholes are still driving down the actual tax rate many are paying. The Government Accountability Office said in 2010 that companies were paying an average effective tax rate of 12.6 percent—well below the nominal federal tax rate of 35 percent.
Business groups like the Business Roundtable see the discussion of tax reform as an opening to push for a territorial system, which would exempt profits made outside the United States from taxes. The groups argue that other developed nations have territorial tax exemptions and the American system puts them at a competitive disadvantage.
Tax writers in Congress are pressing for a full revision of the tax code—that would include eliminating some of these offshore loopholes. House Ways and Means Committee Chairman Dave Camp unveiled a major proposal earlier this year that would close several loopholes and lower the corporate tax rate to 25 percent as well as levy a one-time tax on accumulated profits. However, Camp’s plan was considered dead on arrival and will likely never be brought to a vote.
Any real hope of tax reform was dashed after Camp announced last month that he would retire at the end of his term. And though new Senate Finance Committee Chairman Ron Wyden has signaled he will try to overhaul the sprawling tax code, movement isn’t likely ahead of the midterm elections.
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