Tax Dodging by the Rich Cost You $1,026
US companies are keeping more of their profits offshore, choosing overseas tax havens amid talk in Washington about closing corporate tax loopholes, The Wall Street Journal reported Monday
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America’s largest corporations have stashed nearly $1.5 trillion in offshore tax havens like Bermuda, the Cayman Islands, and Ireland — countries where they do little business but claim massive profits due to low tax rates. As a result, corporate tax rates fell to a 40-year lowin 2011 even as profits rose to a 60-year high.
Tax avoidance from corporations and wealthy individuals has a cost for individual taxpayers and small businesses, according to a new reportfrom the U.S. Public Interest Research Group. According to U.S. PIRG, tax dodging cost individual taxpayers $1,026 and each small business $3,067 in 2012.
Those costs don’t necessarily come from higher taxes; instead, they often come in the form of higher budget deficits or, as they are now, from substantial cuts to public programs and services that benefit middle- and low-income families. “This is a real loss and it’s putting great pressure on the budget and all kinds of investments and programs that the federal government needs to continue to fund,” Michigan Sen. Carl Levin (D) said on a conference call unveiling the report today. Levin has authored legislation calling for the closure of tax loopholes that incentivize the offshoring of profits. “It’s time to close the loopholes, reduce the deficit to protect these important investments in our future, and to bring some fairness back to the tax code,” Levin said.
As corporate tax reform becomes a hot topic in Washington, however, corporations are pushing for reforms that would make it even easier to offshore profits. A “ territorial” system, desired by corporations and corporate lobbying groups, would exempt most foreign profits from American taxation and allow corporations to return profits to the U.S. without taxing them. But Dan Smith, the tax and budget director at U.S. PIRG and co-author of the report, said such a system would only make corporate tax dodging worse.
“A territorial system is essentially the worst of all worlds and would amount to tax dodging made easy. So if the loopholes we have in our current tax code allow companies to shift money offshore, a territorial tax system would be an open invitation to continue to do that,” Smith said on the call. “It would blow a hole in the federal budget and continue to give multinational corporations a huge advantage over small businesses here in America and also larger domestic businesses that don’t use these loopholes.”
Other studies have shown that a territorial system, a reform supported by the House GOP’s top tax-writer, would lead to the creation of 800,000 overseas jobs. In addition, it would only raise the costs of corporate tax avoidance for both individuals and small businesses.