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April 15, Washington – As hardworking Americans file their taxes today, it’s a good time to be reminded that ordinary taxpayers pick up the tab for special interest loopholes in our tax laws. A new U.S. PIRG report released today revealed that the average American taxpayer in 2013 would have to shoulder an extra $1,259 in state and federal taxes to make up for the revenue lost due to the use of offshore tax havens by corporations and wealthy individuals.
“Average taxpayers and small business owners foot the bill for offshore tax dodging. Every dollar in taxes companies avoid by booking profits to shell companies in tax havens must be balanced by cuts to public programs, higher taxes for the rest of us, or more debt,” said Dan Smith, Tax and Budget Advocate for U.S. PIRG and report co-author.
Every year, corporations and wealthy individuals avoid paying an estimated $184 billion in state and federal income taxes by using complicated accounting tricks to shift their profits to offshore tax havens. Of that $184 billion, $110 billion is avoided specifically by corporations.
In early April, the Senate Finance Committee voted to renew two especially egregious offshore loopholes which will cost $8 billion in lost revenue over the next two years.
“The Senate Finance Committee squandered an opportunity to stand with regular taxpayers who can’t marshal armies of lawyers and lobbyists to bend the tax code to their whim. Unfortunately, they caved to special interest pressure,” said Smith.
The report additionally found that the average American small business would have to pay $3,923 to cover the cost of offshore tax dodging by large corporations. Offshore tax havens give large multinationals a competitive advantage over responsible small businesses which don’t have subsidiaries in tax havens to reduce their tax bills. Small businesses get stuck footing the bill for corporate tax dodging.
Many of America’s largest and best-known corporations use these complex tax avoidance schemes to shift their profits offshore and drastically shrink their tax bill. GE, Microsoft, and Pfizer boast the largest offshore cash hoards:
- General Electric paid a federal effective tax rate of negative 11.1 percent between 2008 and 2012 despite being profitable all of those years. The company received net tax payments from the government. GE maintains18 subsidiaries in tax haven in 2013 and parked $110 billion offshore. One of the company’s most lucrative loopholes just got renewed by the Senate Finance Committee. GE alone hired 48 lobbyists to push to renew the “active financing exception.”
- Microsoft avoided $4.5 billion in federal income taxes over a three year period by using sophisticated accounting tricks to artificially shift its income to tax-friendly Puerto Rico. Microsoft maintains five tax haven subsidiaries and keeps $76.4 billion, on which it would otherwise owe $24.4 billion in additional U.S. taxes.
- Pfizer paid no U.S. income taxes between 2010 and 2012 because the company reported losses in the U.S. during those years, despite making 40 percent of its sales in the U.S. and earning $43 billion worldwide. The company operates 128 subsidiaries in tax havens and has $69 billion parked offshore which remains untaxed by the U.S., according to its own SEC filing.
The report recommends closing a number of offshore tax loopholes. Many of these reforms are included in the Stop Tax Haven Abuse Act, introduced by Sen. Levin in the Senate (S.1533) and Rep. Doggett in the House (H.R. 1554).
State governments can also take measures to reclaim some of the revenue lost to tax havens. U.S. PIRG found that by passing a simple, proven reform already on the books in Montana and Oregon, states could collectively save $1 billion annually. Maine was the latest state to consider this reform, which sailed through the legislature in early April.
Click here for a copy of “Picking up the Tab: Average Citizens and Small Businesses Pay the Price for Offshore Tax Havens.”
Click here to see an earlier study showing how states can crack down on offshore tax dodging.
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