Offshore Tax Dodging Blows a $504 Million Hole in Colorado Budget:

New CoPIRG Study Exposes the Real Cost of Tax Loopholes for Colorado Residents

CoPIRG Foundation

February 5th – With Colorado’s state budget stretched thin, CoPIRG released a new study revealing that Colorado lost $504 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.

“Tax dodging is not a victimless offense. When corporations skirt taxes, the public is stuck with the tab. And since offshore tax dodgers avoid both state and federal taxes, they hurt everyday taxpayers twice,” according to Lisa Ritland, Field Director for CoPIRG. “Colorado should be using that money to benefit the public.”

The $504 million lost in Colorado would have been enough to:

  1. Pay the salary for 10,200 additional school teachers 
  2. Increase the amount of money we spend on education by $500 per student.
  3. Chop about a quarter off the state’s general sales tax rate or more than a quarter off property taxes, without a loss of public revenue
  4. Cover one third of the estimated cost of $1.5 billion needed every year just to sustain and repair our roads and bridges. Currently over half of our highways are in poor condition and at least 100 bridges are structurally deficient. 
  5. Pay for all of the damage caused by the wildfires in 2012, one of the most expensive years in Colorado history for wildfires.
  6. And last but not least, the recent debate around gun violence has highlighted that our mental health system is underfunded. This money would be helpful in improving our mental health services in Colorado, especially our 17 community health centers and resources for children in early education.

Tax havens are used by both wealthy individuals and corporations. In Colorado, $310 is lost from the corporate abuse of tax havens and $193 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 a staggering $1.6 trillion offshore. By using offshore tax havens, corporations and wealthy individuals shift the tax burden to ordinary Americans, forcing us to make up the difference through cutting public services, growing our already big deficit, or raising taxes on everyday citizens.

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,” Ritland added.

States should not wait for federal action to curb tax haven abuse. The study proposes several policy solutions that states should explore right away, including:

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

Here are some 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.

You can download the report, “The Hidden Cost of Offshore Tax Havens: State Budgets Under Pressure from Tax Loophole Abuse,” HERE.