First Step to Avoid the Fiscal Cliff: Close Offshore Tax Loopholes

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Dan Smith

Offshore Tax Dodging Costs U.S. $150 Billion Annually; U.S. PIRG Illustrates Impact with 16 Dramatic Ways Lost Revenue Could Be Used

U.S. PIRG Education Fund

Washington, December 6th – With Congress scrambling to agree on ways to reduce the deficit, U.S. Public Interest Research Group (U.S. PIRG) released a new analysis pointing out 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 an estimated $150 billion in tax revenue each year.  U.S. PIRG’s new data illustrates the size of this loss with 16 dramatic ways $150 billion could be spent.

“When corporations skip out on their taxes, the rest of us are left to pick up their tab.” said Dan Smith, Tax and Budget Advocate for U.S. PIRG. “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.”

At least 83 of the top 100 publicly traded corporations in the U.S. make use of tax havens, according to the GAO. American companies like Wal-Mart, Coca Cola, and Pfizer – which benefit from our educated workforce, infrastructure, and security – keep more than 70% of their cash offshore. Thirty of America’s largest, most profitable corporations actually made money off our tax code between 2008 and 2010 by avoiding taxes altogether and receiving tax rebates from the government. By using offshore tax havens, corporations and wealthy individuals shift their tax burden to ordinary Americans and small businesses, forcing us make up the difference through cuts to public services, a bigger deficit, or higher taxes for everyday citizens.

According to Senate Majority Whip Richard Durbin, “The billions of dollars that are stashed in offshore tax havens every year could – and should – be invested right here in America. It could be invested in our schools, our roads, our jobs, and it could be paying down our deficit. As we discuss ways to avoid the fiscal cliff and achieve long-term deficit reduction, we shouldn’t allow wealthy corporations and individuals to take advantage of costly tax loopholes at the expense of our working families and our economy.”

According to Senator Carl Levin, chairman of the Senate Permanent Subcommittee on Investigations, which has done extensive research revealing how much revenue is lost to tax havens, “Congress has to choose whether it will protect offshore corporate loopholes that enable many multinationals to pay little or no tax, or close them to address our deficit problem and to fund national defense, education, health care, and other critical needs.  Closing corporate tax loopholes should be part of the conversation about how to avoid the fiscal cliff, and I’m glad to see this project doing just that.”

To illustrate the size of the revenue lost each year to tax havens, U.S. PIRG presented 16 specific ways it could be spent in a fact sheet released today, titled “What America Could Do With $150 Billion Lost to Tax Havens.” Examples include:

      • Providing Pell Grants for ten million college students every year for four years;
      • Bringing 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
      • Giving $1,068 to every person who filed taxes in America.

Perhaps most strikingly, 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.” In fact, over ten years this lost revenue would be enough to achieve 37.5% of the $4 trillion debt reduction goal for that period favored by bipartisan leaders in Congress.

“Before we talk about more cuts in infrastructure and services that all businesses rely on, we should close loopholes that some U.S. multinationals use to avoid their share of taxes,” said Eric Henry, president of TS Designs, a t-shirt manufacturing and printing company in Burlington, NC. “While we are still recovering from the Great Recession, our economy needs public investment, not budget cuts and giveaways to tax-dodging corporations.”

“There are some tough budget decisions ahead, but closing the offshore tax loopholes that let large companies shift their tax burden to the rest of us should be an easy one,” Smith added.

To download the fact sheet, “What America Could Do With $150 Billion Lost to Tax Havens,” visit:

A few ways some 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.
      • Microsoft avoided $4.5 billion in federal income taxes over three years using sophisticated accounting tricks to artificially shift its income to tax-friendly Puerto Rico. The American company pays its Puerto Rican subsidiary 47% of the revenue generated from selling products in America that were developed in America. 
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U.S. PIRG Education Fund, a 501(c)(3) organization, works to protect consumers and promote good government. We investigate problems, craft solutions, educate the public, and offer Americans meaningful opportunities for civic participation.