Offshore Tax Havens Cost Average Taxpayer $1,026 a Year, Small Businesses $3,067

U.S. PIRG

April 4, WASHINGTON – With Tax Day approaching, it’s a good time to be reminded of where our tax dollars are going. U.S. PIRG was joined today by Senator Levin (D-MI), Joseph Rotella, the owner of a Massachusetts small business, and Scott Klinger, the Tax Policy Director of the American Sustainable Business Council and Business for Shared Prosperity, to release a new study which revealed that the average taxpayer in 2012 would have to shoulder an extra $1,026 in taxes to make up for the revenue lost due to the use of offshore tax havens by corporations and wealthy individuals. The report also found that the average small business would have to pay $3,067 to cover the cost of offshore tax dodging by large corporations.

“Tax dodging is not a victimless offense. When companies use accounting gimmicks to move their profits to tax haven shell companies, the rest of us have to pick up the tab,” said Dan Smith, Tax and Budget Advocate for U.S. PIRG and report co-author. “With the nation facing such serious budget challenges, it’s a no-brainer that we need to close these loopholes and stop letting large corporations avoid paying what they should.”

Every year, corporations and wealthy individuals avoid paying an estimated $150 billion in taxes by using complicated accounting tricks to shift their profits to offshore tax havens. Of that $150 billion, $90 billion is avoided specifically by corporations.

“As this timely report shows, tax haven abuse takes an immense toll on the vast majority of American taxpayers who don’t employ armies of lawyers and accountants to avoid paying the taxes they owe,” said Sen. Carl Levin, who has led the fight in Congress against offshore tax dodging and has introduced legislation to close corporate tax loopholes. “We can no longer afford the damage these abuses do to the federal budget, and American families and businesses can’t afford to carry the burden of a privileged few who use egregious loopholes to avoid paying taxes. It is time to close these loopholes, reduce the deficit, protect important investments in our future and bring some fairness back to the tax code,” he added.

The federal revenue lost to offshore tax havens would be more than enough to cover the automatic federal budget cuts caused by the sequester. A recent U.S. PIRG report also found that offshore tax dodging costs states nearly $40 billion annually, which roughly equals the total amount spent by all state and local governments on firefighters in 2008.

Offshore tax havens also give large multinationals a competitive advantage over responsible small businesses which don’t use tax havens and get stuck footing the bill for corporate tax dodging.

“While I’ll be paying my taxes – investing in the public infrastructure and services that underpin our economy – many profitable large corporations will be paying a lower tax rate than me or not paying taxes at all,” said Joseph Rotella, the owner of Spencer Organ Company, a small business in Waltham, Massachusetts. “That puts small businesses at a competitive disadvantage and undermines our nation,” he added.

Scott Klinger, the Tax Policy Director of the American Sustainable Business Council and Business for Shared Prosperity, which represents more than 165,000 business owners throughout the United States, also commented on the report’s findings. “Joseph is far from alone in his concern. Using offshore tax loopholes to avoid paying taxes is not a Democrat or Republican issue. It is a serious business issue, and one of great importance to Main Street business owners, regardless of their political affiliation.”

Many of America’s largest and best-known corporations use complex tax avoidance schemes to shift their profits offshore and drastically shrink their tax bill:

• Pfizer, the world’s largest drug maker, made 40 percent of its sales in the U.S. over the past five years, but thanks to their use of offshore tax loopholes they reported no taxable income in the U.S. during that time. The company operates 172 subsidiaries in tax havens and has $73 billion parked offshore which remains untaxed by the U.S., according to its own SEC filing. That is the second highest amount of money sitting offshore for a U.S. multinational corporation.
• Microsoft avoided $4.5 billion in federal income taxes over a three year period by using sophisticated accounting tricks to artificially shift its income to tax-friendly Puerto Rico. Microsoft maintains five tax haven subsidiaries and keeps 70 percent of its cash offshore, a total of $60.8 billion, on which it would otherwise owe $19.4 billion in U.S. taxes. 
• Citigroup – a bank that was bailed out by taxpayers during the financial meltdown of 2008 – maintains 20 subsidiaries in tax havens and has $42.6 billion sitting offshore, on which it would otherwise owe $11.5 billion in taxes, according to its own SEC filing. Citigroup currently ranks eighth among U.S. multinationals for having the most money stashed offshore.

“It is appalling that these companies get out of paying for the nation’s infrastructure, education system, and security that help make them successful,” added Smith.

The report recommends closing a number of offshore tax loopholes. Many of these reforms are included in Senator Levin’s Cut Unjustified Tax Loopholes Act (Senate Bill 268).

Download a copy of today’s report, “Picking up the Tab: Average Citizens and Small Businesses Pay the Price for Offshore Tax Havens.”

Download an earlier study showing how offshore tax dodging harms state budgets.

U.S. PIRG, the federation of state Public Interest Research Groups, is a non-profit, non-partisan public interest advocacy organization that takes on powerful interests on behalf of its members, working to win concrete results for our health and well-being.