New WISPIRG Study Exposes the Real Cost of Tax Loopholes for Wisconsin Taxpayers and Business Owners
MADISON, February 27th – With the federal budget sequester looming and the Wisconsin legislature debating Wisconsin’s next biennial budget, the Wisconsin Public Interest Research Group is highlighting millions in lost revenue that unfairly impacts Wisconsin taxpayers and business owners: offshore corporate tax loopholes. WISPIRG, joined by Brad Werntz, owner of Pemba Serves Inc, and Lori Henn, owner of Fair Trade Coffee House, released a new study revealing that Wisconsin lost an estimated $814 million due to offshore tax dodging in 2012. This is in addition to $150 billion worth of federal tax revenue lost every year. 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 Joe Rasmussen, Program Associate for WISPIRG. “That money should be used to benefit the public. With indiscriminate federal budget cuts that throw the baby out with the bathwater looming at the end of the week, federal leaders should act now on this common-sense solution to our budget challenges.”
All told, state taxpayers across the country lost nearly $40 billion last year from offshore tax loophole abuse. To put that amount in context, $40 billion roughly equals 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.
In Wisconsin, $814 million in additional revenue would be enough to:
• Double the size of Governor Scott Walker’s proposed income tax cut for individuals, with money left over to increase our budget surplus, or
• Pay in-state tuition for over 100,000 Wisconsin university students, or
• Hire over 12,000 additional teachers for Wisconsin’s public schools (based on average teacher salary according to http://www.teacherportal.com/teacher-salaries-by-state/)
Tax havens are used by both wealthy individuals and corporations. In Wisconsin, $512 million is lost from the corporate abuse of tax havens and $303 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 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 “sequester” spending cuts that are set to take effect on Friday.
“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,” Rasmussen 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,”at http://www.wispirg.org/reports/wip/hidden-cost-offshore-tax-havens. This report follows “What America Could Do With $150 Billion Lost to Offshore Tax Havens” (http://www.wispirg.org/reports/wip/what-america-could-do-150-billion-los…), which highlights the federal impact.
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WISPIRG Foundation, the Wisconsin Public Interest Research Group Foundation, is a consumer group that stands up to powerful interests whenever they threaten our health and safety, our financial security, or our right to fully participate in our democratic society. www.wispirgfoundation.org