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MASSPIRG
|
Patriot Ledger
By
Deirdre Cummings

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 federal treasury loses an estimated $150 billion in revenue annually from offshore tax havens. Many U.S. corporations and wealthy individuals employ high-priced lawyers and accountants to make income legitimately earned in the U.S. magically appear on the books of a P.O. box 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, which already has a low tax rate. In addition, 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 of the rate paid by middle-income Americans.

How pervasive is offshore tax dodging by corporations? Google competitors Microsoft and Apple use similar tax gimmicks to shrink their tax bill. Wal-Mart, Coca Cola and Pfizer each keep more than 70 percent of their cash offshore. Hewlett Packard, headquartered in California, keeps no cash in the U.S. None.

At least 83 of the 100 largest publicly traded American corporations have subsidiaries in tax haven countries, according to the Government Accountability Office. These companies benefit from our educated workforce, infrastructure and security, yet do everything they can to avoid paying their share.

When corporations don’t pay, they shift their tax burden to ordinary Americans, forcing us make up the difference through cuts to public services, a bigger deficit or higher taxes for everyday citizens. If every tax filer in Massachusetts were asked to split the bill for offshore tax dodging, the average taxpayer would have to cough up $636, according to a MASSPIRG study.

Small businesses are hit especially hard by corporate tax dodging. Responsible small businesses are put at a competitive disadvantage because they can’t hire the armies of well-paid lawyers and accountants that it takes to use offshore tax loopholes, and they don’t have the spare cash to leave offshore anyway. Not surprisingly, a poll done 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 than having it sit in a P.O. box in the Caymans. With the fiscal cliff on the horizon, closing offshore tax loopholes should be an obvious first step to solving our budget woes.

Deirdre Cummings is the legislative director for MASSPIRG, a statewide, nonprofit, nonpartisan, member-supported public interest watchdog organization.

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