As hardworking Americans file their taxes, it’s a good time to be reminded of how ordinary taxpayers pick up the tab for the loopholes in our tax laws.
Illinois PIRG (Public Interest Research Group) released a new study April 15 titled “Picking up the Tab: Average Citizens and Small Businesses Pay the Price for Offshore Tax Havens,” which revealed the average Illinois taxpayer in 2013 would have to shoulder an extra $1,396 in taxes to make up for the revenue lost as a result of the use of offshore tax havens by corporations and wealthy individuals.
Dev Gowda, advocate for Illinois PIRG, said: “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.”
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 that 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,” Gowda said. “Unfortunately, they caved to special-interest pressure.”
The report additionally found that the average Illinois small business would have to pay $4,588 to cover the cost of offshore tax dodging by large corporations. Offshore tax havens give large multinationals a competitive advantage over responsible small businesses that 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 companies have used accounting gimmicks to book profits made in the U.S. to offshore tax havens, where they pay little to no tax,” said Mike Nikodem, owner of Great Harvest Bread Company in Naperville, Ill. “Small business owners like myself are left with picking up the tab. Our elected leaders should fix the tax code so that small businesses don’t face a competitive disadvantage against large corporations.”
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 maintains 18 subsidiaries in tax havens 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 U.S. Sen. Carl Levin, D-Mich., in the Senate (S.1533) and U.S. Rep. Lloyd Doggett, D-Texas, in the House (H.R. 1554).
“This is yet another example of why tax reform needs to be more than just campaign rhetoric,” said U.S. Rep. Dan Lipinski, D-Ill., a co-sponsor of H.R. 1554. “Hard-working middle-class Americans and the small businesses that are the future of this nation should not be forced to carry the tax burden sidestepped by others through the use of offshore accounts. I applaud Illinois PIRG for their exemplary work on this issue.”
Illinois can also take measures to reclaim some of the revenue lost to tax havens. Illinois PIRG found that by passing a simple, proven reform already on the books in other states, Illinois could save $108.3 million annually.
“The Illinois number is striking,” said Illinois state Rep. Greg Harris, D-Chicago. “If big corporations only paid their fair share for one year, the state’s operating budget problems could disappear overnight, elementary, secondary and higher education would be fully funded, MAP grant scholarships doubled, home and health services for senior citizens and people with disabilities fully restored, after-school and anti-gang programs tripled, and every overdue bill paid. So many of the troubles that face our state and communities would be wiped out in an instant if these loopholes were closed.”
View a copy of “Picking up the Tab: Average Citizens and Small Businesses Pay the Price for Offshore Tax Havens” at http://www.illinoispirg.org/reports/ilp/picking-tab-2014.
See an earlier study showing how states can crack down on offshore tax dodging at http://www.illinoispirgedfund.org/reports/ilf/closing-billion-dollar-loophole.
From the April 23-29, 2014