DENVER – Offshore tax havens are blowing a huge hole in state and federal tax systems, according to a new report, which puts the total revenue lost at almost $200 billion dollars a year. That’s enough to not only stop the automatic federal spending cuts threatened for March 1, but also to cover all state and local firefighting budgets nationwide for a year.
Dan Smith wrote “The Hidden Cost of Offshore Tax Havens” for the watchdog organization U.S. PIRG (Public Interest Research Group), where he is a tax and budget advocate. He said they estimate the United States loses $150 billion a year, and states lose another $40 billion, more than a half-billion dollars in Colorado state taxes alone.
“It’s not a victimless offense,” Smith charged. “The winners are the big banks, pharmaceuticals and high tech companies. And the losers are small businesses and ordinary taxpayers.”
Defenders of the tax havens say they help firms dodge a high corporate income tax rate, and that companies might relocate if the loopholes were closed. But Smith argued that few companies pay the full corporate tax rate. And he said they’re unlikely to leave the U.S., because the work is done here and the products are sold here.
Smith said many corporate subsidiaries are little more than a complicated legal fiction. Products might be created and sold in the U.S., but the profits can magically bounce around the world before ending up in a Caribbean PO box.
“In the Cayman Islands there is actually a single building, five stories tall, that has nearly 19,000 corporate headquarters registered to it,” he asserted.
And, he said, the system gives the biggest companies an unfair advantage.
“The small business owner doesn’t have a thousand lawyers in its tax department,” Smith declared. “That’s how many General Electric has. And not surprisingly, that company, over a three-year period, paid nothing in federal income taxes.”
The report is at USPIRGEdFund.org.