Offshore Tax Dodging Blows a $503M Hole in Arizona’s Budget

Media Contacts
Jason Donofrio

New Arizona PIRG Education Fund Study Exposes the Cost of Tax Loopholes for State

Arizona PIRG Education Fund

As Arizona lawmakers are soon to begin discussing the state budget for the next fiscal year, the Arizona PIRG Education Fund released a new study, The Hidden Cost of Offshore Tax Havens: State Budgets under Pressure from Tax Loophole Abuse, revealing that the State of Arizona lost $503 million due to offshore tax dodging in 2012. Many of America’s wealthiest individuals and largest corporations use tax loopholes to shift profits made in America to offshore tax havens, where they pay little to no taxes.

“When corporations skirt taxes, the public is stuck with the tab. Since offshore tax dodgers avoid both state and federal taxes, they hurt everyday taxpayers twice,” Serena Unrein, Public Interest Advocate for the Arizona PIRG Education Fund. “Offshore tax havens shift the tax burden to ordinary Americans, forcing us to make up the difference by cutting public services, growing our already big deficit, or raising taxes.”

States collectively lost nearly $40 billion last year from offshore tax loophole abuse, which is roughly equivalent to the total amount spent by all state and local governments on firefighters in 2008. It’s also enough money to cover the educational costs for 3.7 million children for one full year.

Tax havens are used by both wealthy individuals and corporations. In Arizona, $360 million is lost from the corporate abuse of tax havens and $143 million from individuals.

As of 2008, at least 83 of the top 100 publicly traded corporations in the U.S. used tax havens, according to the Government Accountability Office. At the end of 2011, 290 of the top Fortune 500 companies reported that they collectively held $1.6 trillion offshore.

At the national level, offshore tax loopholes cost federal taxpayers $150 billion each year, which would be more than enough to cover the scheduled spending cuts that are set to take effect in just a few weeks.

“Some budget decisions are tough, but closing the offshore tax loopholes that let large companies shift their tax burden to the rest of us is a no-brainer,” Unrein added.

The study pointed out that states do not have to wait for federal action to curb tax haven abuse and proposed several policy solutions that states could explore, which included:

  • Decoupling state tax systems from the federal tax system
  • Requiring worldwide combined reporting for multinational corporations
  • Requiring increased disclosure of financial information
  • Withholding state taxes as part of the federal Foreign Account Tax Compliance Act (FACTA) withholding

The Arizona PIRG Education Fund also provided examples of the increasingly notorious ways that some of America’s largest corporations drastically shrink their tax bill:

  • Google used accounting techniques nicknamed the “double Irish” and the “Dutch sandwich,” which involved two Irish subsidiaries and one in Bermuda, to help shrink its tax bill by $3.1 billion from 2008 to 2010.
  • Wells Fargo paid no federal income taxes in 2008, 2009, and 2010, despite being profitable all three years, largely due to its use of 58 offshore tax haven subsidiaries.
  • Microsoft avoided $4.5 billion in federal income taxes over three years by using sophisticated accounting tricks to artificially shift its income to tax-friendly Puerto Rico. The company pays its Puerto Rican subsidiary 47% of the revenue generated from its American sales, despite the fact that those products were developed and sold in the U.S.

The Hidden Cost of Offshore Tax Havens report can be downloaded here.

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