By Sonia Ashe
As Congress scrambles to agree on ways to reduce the deficit, Iowans across the political spectrum must at agree on a clear first step to avoid the “fiscal cliff”: closing offshore tax loopholes.
Many of America’s largest corporations and wealthiest individuals use accounting gimmicks to shift profits made in America to offshore tax havens, where they pay little to no taxes. This tax avoidance costs the federal government $150 billion in tax revenue each year.
That’s not chump change.
With just a single year’s worth of the revenue lost to offshore tax havens, we could give 10 million students Pell Grants for all four years of college; we could bring transportation into the 21st century by funding construction of 15 commuter rail lines, 50 light rail transit lines, and more than 800 bus rapid transit lines; or we could give more than $1,000 to every American who files taxes.
We also could retrofit one in every four existing housing units in the United States for improved energy efficiency, cutting energy usage by
22 percent per residence, guarantee loans for half a million small businesses or even build a manned outpost on the moon.
Reclaiming the $150 billion lost to offshore tax loopholes would more than cover the $109 billion in automatic spending cuts that will take effect in 2013 if Congress fails to avert the “fiscal cliff.”
And then there’s the deficit. Ten years of this lost revenue would be enough to achieve 37.5 percent of the $4 trillion debt reduction goal for that period favored by bipartisan leaders in Congress.
Here’s the point. When corporations exploit offshore tax loopholes to skip out on their taxes, the rest of us are left to pick up their tab in the form of cuts to public programs, more debt, or higher taxes. Right now, this kind of tax dodging is perfectly legal, but it’s not fair and it’s time to put an end to it. Is it more important to invest in education and public transportation or for companies to keep shifting their profits to the Cayman Islands?
There are some tough budget decisions ahead, but this should be an easy one.
How pervasive is offshore tax dodging by corporations? At least 83 of the 100 largest publicly traded American corporations, as well as many wealthy individuals, move profits legitimately made here in the United States to offshore tax havens in order to avoid paying federal income taxes. For example, Google shrunk its tax bill by $3.1 billion from 2008 to 2010 in part by using a tax haven. Wells Fargo was profitable from 2008 to 2010, but it paid no federal income taxes during that time in part because of its use of 58 offshore tax haven subsidiaries. These American companies benefit from access to America’s markets, educated work force, security and infrastructure, yet they manipulate the tax code to avoid paying for these benefits.
Responsible small businesses are put at a competitive disadvantage since they can’t hire the armies of high-paid lawyers and accountants that it takes to use offshore tax loopholes. Iowa PIRG found in an earlier report this year that, in order to make up for corporate tax dodging, the average American small businesses would have to pay an additional $2,116 in taxes. Here in Iowa, small businesses foot a bill of an additional $1,582 in taxes.
With the fiscal cliff on the horizon, closing offshore tax loopholes should be an obvious first step.Sonia Ashe is an advocate with the Iowa Public Interest Research Group, a statewide non-profit, non-partisan consumer advocacy organization. For more information, visit www.iowapirg.org. Comments: firstname.lastname@example.org