Offshore Tax Havens Cost Average California Taxpayers $423 a Year, Each California Small Business $2,010


Posted on 12 April 2012

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By Pedro Morillas
CALPIRG

With tax day approaching, a new study released by CALPIRG found that the average California taxpayer in 2011 would have to shoulder an extra $423 tax burden to make up for revenue lost from corporations and wealthy individuals shifting income to offshore tax havens. The report additionally found that to cover the cost of the corporate abuse of tax havens in 2011, small businesses in California would have to foot a bill of over $2,010 on average.

Every year, corporations and wealthy individuals avoid paying an estimated $100 billion in taxes by shifting income to low or no tax offshore tax havens. Of that $100 billion, $60 billion in taxes are avoided specifically by corporations. A GAO study found that at least 83 of the top 100 publically traded corporations use offshore tax havens.

When corporations shirk their tax burden by using accounting gimmicks to stash profits legitimately made in the U.S. in offshore tax havens like the Caymans, the rest of us must pick up the tab. Responsible small businesses don’t just foot the bill for corporate tax dodging, they are put at a competitive disadvantage since they can’t hire armies of well paid lawyers and accountants to use offshore tax loopholes.

The report recommends closing a number of offshore tax loopholes, many of which are included in the Stop Tax Haven Abuse Act (H.R. 2669) and Cut Unjustified Tax Loopholes Act (S.2075).

Using complex tax avoidance schemes, many of America’s largest corporations drastically shrink their tax bill:

  • Google uses techniques nicknamed the “double Irish” and the “Dutch sandwich,” involving two Irish subsidiaries and one in Bermuda – a tax haven – that helped shrink its tax bill by $3.1 billion between 2008 and 2010.
  • Wells Fargo paid no federal income taxes between 2008 and 2010 despite being profitable all three years in part due to its use of 58 offshore tax haven subsidiaries.
  • G.E. received a $3.3 billion profit in 2010 despite reporting over $5 billion in U.S. profits to shareholders. The company has $94 billion parked offshore and uses 14 tax haven subsidiaries.

It is appalling that these companies get out of paying for the nation’s infrastructure, education system, security, and large market that help make them successful.

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 30 companies that paid more in campaign contributions and lobbying expenses than they did in federal income taxes.

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Pedro Morillas joined CALPIRG’s advocacy team as its Sacramento-based Legislative Advocate in August 2007. Prior to that, for two years he directed citizen outreach offices for CALPIRG in Santa Cruz and San Diego, building citizen support for CALPIRG campaigns to improve drug safety, enact lobby reforms in Congress, and invest in public transit, among others.

Pedro, thanks for another critically important report exposing the wealth and power shift that's been taking place in this country for over 30 years now.

I came across more mind boggling stats that beg the question why are corporations, at a time they are wealthier and more influential than ever before, continued to be taxed at the lowest rate since the 40's, and pitch in the lowest share of taxes than at almost anytime in history? This question is especially salient when considering our growing debt and the gutting of our social safety net and investments in our future.

Here are a few: Exxon's annual sales, which totaled $350 billion in 2011, were almost equal to Sweden's GDP. Exxon spent more money on political lobbying than Sweden did on its foreign policy in 2010, Rothkopf notes. As for Wal-Mart, one of the largest employers in the world, its employees greatly outnumber the populations of more than 100 countries. Wal-Mart's sales revenues are higher "than the GDPs of all but 25 countries," according to Rothkopf."

And, a report now available by Citizens for Tax Justice shows that if you include the tax year of 2011, 26 of the 30 corporations that paid negative taxes 5 years ago still paid a negative tax rate overall. As David Dayen notes, "That’s four years of paying no corporate tax and instead receiving back billions in subsidies. According to the report, if these 30 companies paid the nominal tax rate of 35% over the four years in this analysis, they would have paid $78.3 billion in federal taxes...And of course, this is merely 30 of the nation’s largest corporations.

...

The current corporate tax collection over the last three fiscal years has fallen to 1.2% of GDP, according to the Treasury Department. Says the CTJ report, “That’s lower than at any time since the 1940s except for one single year during President Reagan’s first term,” and it stands in contrast to an average rate of about 4% of GDP in the 1960s."

Yet, here's the GOP (and some Democrats) demanding cuts to health care for poor children, student loans, infrastructure, heating subsidies for poor families, food stamps, unemployment insurance, and every public good you can think up...sick.

Back in my youth I did a lot of work on international oil rigs. We had, typically, a six weeks on, three weeks off schedule. My crew and I lived in Belize. Why? Because by never setting foot in America we paid no US taxes. Belize had a low, flat tax rate for ex-pats who used their banks and did not work in the country. Is that a tax shelter and is that an abuse? It certainly was legal (today? don't know, haven't been working offshore in years).

But, in a larger sense, don't these things go on all the time? Corporations have armies of lawyers and tax accountants who exist only to find legal ways around tax law. Sure, you can change the law, but they just find another loophole. As long as it is profitable, clever lawyers and accountants will do that. And, in the long run, who is smarter? The government or the lawyers and accoutants? By the way, the answer is not government.

So, rather than trying to fight this unwinnable war, why don't we just get rid of all corporate taxes? Corporations just pass the taxes on to products anyways. Stop deluding ourselves. This would end a lot of offshoring and outsourcing in and of itself. In the long run it would rationalize and make more efficient industry and the IRS could unload half of its staff.

Off shore tax havens.
The best thing to happen to the taxpayer.