A report by
U.S. PIRG examines the use of offshore tax havens by American corporations and
wealthy individuals and shows us how much these "people" (remembering
that "corporations are people too") are avoiding in U.S. taxes.
U.S. PIRG estimates that these "tax dodges" cost Washington an
estimated $150 billion in lost tax revenue annually.
Of the top
100 publicly traded American corporations, at least 83 use tax havens according
to the GAO; these companies keep more than 70 percent of their cash in
off-shore subsidiaries to protect profits from the American tax system.
This includes such name-brand companies as Wal-Mart, Coca Cola and
Pfizer. Further, 30 of America's largest corporations actually made money
off the current tax system by receiving tax rebates, ending up with an overall negative tax rate. In recent days, Google has come under the microscope of the mainstream media around the world when it was reported that the company avoided $2 billion in world-wide income taxes by shifting $9.8 billion in revenue to Bermuda, a nation that has no corporate income tax. This "shifting" has allowed Google to cut its overall tax rate in half. Remember, "Don't Be Evil"!
Just in case
you were wondering how profitable America's corporate world is, here
is a graph from FRED showing that after-tax corporate profits reached a new
record in 2012 despite the significant drop during the Great Recession and the problems in the Eurozone economy:
For the first two months of fiscal 2013, Washington
collected $4 billion in corporate taxes, down 4.6 percent from 2012. This
compares to individual income taxes of $178 billion which were up 12.9 percent
from 2012. Looking at fiscal 2012 in its entirety, Washington
collected $242 billion in corporate taxes compared to $1132 billion in
individual income taxes; in 2012, corporate taxes made up 9.9 percent of total
revenue compared to 46.2 percent that was gleaned from individual income taxes.
Let's go
back to the $150 billion in annual lost tax revenue. U.S. PIRG looks at
how this additional tax revenue could be spent in light of the looming fiscal
cliff:
1.) Each
American taxpayer could receive a $1068 tax cut. These additional funds
in the hands of American consumers would likely result in additional consumer
spending, reducing at least some of the anticipated drop in GDP after December 31, 2012. While I'm not a huge fan of consumers adjusting their consumption ever-higher, that's how the economy grows in the 21st century.
2.) These
funds would more than cover the $109 billion in automatic spending cuts that
will take place if Congress does nothing to avoid the fiscal cliff (as they are
sure to do).
3.) Ten
years worth of this missing tax revenue would cover 37.5 percent of the $4
trillion debt reduction goal and 75 percent of the deficit reduction needed to
stabilize the debt-to-GDP ratio at its current level (of just over 100
percent).
How could
Washington fix the tax code to prevent the use of tax havens by highly profitable corporations?
1.) Require
corporations to report on foreign government-sourced tax credits.
2.) Prevent
U.S.-based multinational corporations from deferring the payment of American
taxes on profits made by overseas entities.
3.) Treat
the foreign profits of U.S.-owned corporations the same as those of domestic
corporations for tax purposes.
4.)
Eliminate the loopholes that allow U.S. corporations to transfer intellectual
property to overseas subsidiaries to avoid domestic taxation.
If
Washington really is serious about reducing the fiscal gap and avoiding the
fiscal cliff, perhaps Congress should give serious consideration to some of
U.S. PIRG's rather basic suggestions. After all, why should companies
that make billions in profits render nothing to the taxman? We should all be paying our share.
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