Tuesday, March 11, 2014
By Nicole Karatzas
PORTLAND - With the "fiscal cliff" looming, the debate over tax cuts for the middle and upper class has been fierce. But there has been little talk about a wealth of tax revenue that's hiding amid pristine beaches and lush palm trees.
The U.S. Treasury loses an estimated $150 billion in revenue annually thanks to offshore tax havens. Many U.S. corporations and wealthy individuals employ high-priced lawyers and accountants to make income legitimately earned in the United States magically appear on the books of a post office box belonging to a shell company in a tax haven like the Cayman Islands, where it is taxed very little, if at all.
Here's an example of how it works. Google used tax tricks nicknamed the "double Irish" and the "Dutch sandwich" to shrink its tax bill by $3.1 billion over three years.
The company has two subsidiaries in Ireland, a country with an already low tax rate. Even so, the headquarters of one of these subsidiaries is listed in Bermuda.
To avoid taxes, the profits of these subsidiaries are shifted on paper from Ireland to Bermuda, with a pit stop at a shell company in the Netherlands that has no employees. Thanks to tricks like these, Google's tax rate in 2010 was a minuscule 2.4 percent -- far lower than the corporate tax rate of 35 percent and much less than the rate paid by middle-income Americans.
How pervasive is offshore tax dodging by corporations? Google's competitors, Microsoft and Apple, use similar tax gimmicks to shrink their tax bill. Walmart, Coca-Cola and Pfizer each keep more than 70 percent of their cash offshore. Hewlett-Packard, headquartered in California, keeps no cash in the country. None.
At least 83 of the 100 largest publically traded American corporations have subsidiaries in tax haven countries, according to the Government Accountability Office. These companies benefit from our educated work force, infrastructure and security, yet they do everything they can to avoid paying their share.
When corporations don't pay, they shift their tax burden to ordinary Americans, forcing us to make up the difference through cuts to public services, a bigger deficit or higher taxes for everyday citizens. If every American tax filer were asked to split the bill for offshore tax dodging, the average taxpayer would have to cough up $426, according to a U.S. Public Interest Research Group study.
Small businesses are hit especially hard by corporate tax dodging. Responsible small businesses are put at a competitive disadvantage since they can't hire the armies of well-paid lawyers and accountants that it takes to maneuver offshore tax loopholes, and they don't have the spare cash to leave offshore anyway.
Not surprisingly, a poll earlier this year found that 91 percent of small-business owners saw the use of offshore tax loopholes by big business as a problem.
So far, the $150 billion lost annually to offshore tax havens has been curiously absent from the debate over how to avert the fiscal cliff. Meanwhile, corporate lobbying groups are quietly pushing for changes to the tax system that would permanently exempt offshore profits from U.S. taxes. Right now, corporations have to pay U.S. taxes on profits if they bring them back into the country from offshore. Now they're looking for ways to make sure they never have to pay taxes on money once it's been stashed overseas.
The $150 billion lost to tax havens would be more than enough to cover the automatic cuts to public programs set to occur if America goes over the "cliff."
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.
We can all agree that there are better ways to use 150 billion dollars than having it sit in a post office box in the Cayman Islands. With the fiscal cliff on the horizon, closing offshore tax loopholes should be an obvious first step to solving our budget woes.
Nicole Karatzas is an associate with the U.S. Public Interest Research Group, a federation of state nonprofit, nonpartisan public interest advocacy groups.