Offshore Tax Dodging Blows a $2.5 Billion Hole in Illinois’ Budget

New Illinois PIRG Study Exposes the Real Cost of Tax Loopholes for Illinois Residents

Illinois PIRG Education Fund

Offshore Tax Dodging Blows a $2.5 Billion Hole in Illinois’ Budget:

New Illinois PIRG Study Exposes the Real Cost of Tax Loopholes for Illinois Residents

CHICAGO, February 5th – With Illinois in the midst of a budget crisis, the Illinois PIRG Education Fund, joined by the Small Business Advocacy Council; Gail Glasser, a small business owner; and the Chicago Political Economy Group, released a new study revealing that Illinois lost $2.5 billion 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 Anu Dathan, Program Associate for the Illinois PIRG Education Fund. “Illinois should be using that money to benefit the public.”

Tax havens are used by both wealthy individuals and corporations. In Illinois, $1.9 billion is lost from the corporate abuse of tax havens and $607 million from individuals.

To put these numbers in context, the $2.5 billion that Illinois lost in revenue last year is 125 times what Governor Quinn is trying to save by shutting down state-run mental health institutions. It’s also half of what the Board of Education has requested from the state government for the entire year, and enough to pay the salaries of 34,000 Chicago public school teachers.

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,” Dathan added. “Governor Quinn is looking for a way to fix Illinois’ budget crisis. Here’s a good place to start.”

Illinois 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:

  • Boeing, headquartered in Chicago, had an effective federal tax rate of -1.8% between 2008 and 2010, meaning the company not only paid no federal taxes, it actually got money back from the government.
  • 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.

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The Illinois PIRG Education Fund conducts research and public education on behalf of consumers and the public interest.