Important Steps to Fix the Gaming of the Corporate Tax System
A common theme from both Democrats and Republicans in the recent election was the increasing problem that multinational companies are moving money and jobs offshore. These practices are encouraged by loopholes in the tax code, which encourage companies to move. These loopholes should be closed.
On Tax Reform, Congressional Leaders Propose Widening Loopholes for Multinationals at Expense of Domestic Businesses and Middle Class Taxpayers
Much of the analysis of the 2016 election reflects on a middle class that feels overburdened. While the economy has certainly improved since the recession, one thing has gotten worse that may be partially to blame—offshore tax haven abuse. A new report from U.S. PIRG Education Fund finds that multinational companies dodge an estimated $147 billion in federal and state taxes annually through offshore tax haven loopholes, shifting that burden instead onto small businesses and individual taxpayers. Titled “Picking Up the Tab 2016: Small Businesses Bear the Burden for Offshore Tax Havens,” the study estimates that each small business, on average, owes $5,186 more on its annual tax bill to collectively make up for the federal and state corporate tax revenue lost to offshore tax havens.
For more than a decade we have seen a steep climb in the amount of money kept offshore by multinational companies. This has resulted in $2.5 Trillion to remain untaxed—at an estimated cost of $700 billion to the US Treasury. Throughout the 2016 election, both presidential candidates pledged to close loopholes that allow corporations to dodge taxes and stop companies from booking their profits overseas. Though the follow-through has yet to be seen. Many have even argued that Donald Trump’s victory was the result of a frustrated middle class that increasingly feels over-burdened, while they see the wealthy and corporations—following their own set of rules—shifting their responsibilities onto them.
A new report from U.S. PIRG Education Fund finds that multinational companies dodge an estimated $147 billion in federal and state taxes annually through offshore tax haven loopholes, shifting that burden instead onto small businesses and individual taxpayers. Titled “Picking Up the Tab 2016: Small Businesses Bear the Burden for Offshore Tax Havens,” the study estimates that each small business, on average, owes $5,186 more on its annual tax bill to collectively make up for the federal and state corporate tax revenue lost to offshore tax havens.
Multinational Companies Dodging $147 Billion Annually in State and Federal Taxes through Offshore Tax Schemes
WASHINGTON, D.C. – A new report from U.S. PIRG Education Fund finds that multinational companies dodge an estimated $147 billion in federal and state taxes annually through offshore tax haven loopholes. The report explains the staggering cost to small businesses and individual taxpayers, who are forced to shoulder the increased tax burden.
Increasingly the issues of tax avoidance and financial secrecy are drawing the attention of a broader audience. Both issues were repeatedly mentioned throughout the presidential election by both candidates. Donald Trump’s original tax plan even went as far as to end deferral, though updates to the plan in September omitted any position on it. With the results of the election in, FACT and our members are analyzing what they mean for reform here at home. More on that in the weeks to come.
The EU commission’s decision in August to force Apple to pay back $14 billion in dodged taxes to Ireland served as a wake-up call to many investors—tax avoidance is a serious risk. A recent article in the Financial Times, explained how several major funds and investment groups are deeply concerned with companies’ increasing reliance on tax avoidance schemes. One such fund, Nordea Asset Management—has written to a number of companies—including Alphabet and Apple. In the letter, they ask that companies lay out their tax risks and that—if they don’t comply by January—they “will rally other investors and propose shareholder resolutions in 2017.” Four other fund houses in the UK—representing almost £1tn of assets—have also written to the board of Alphabet to raise concerns about its tax arrangements.
As Congress Pursues Tax Reform, FACT Urges Lawmakers to Close Loopholes, Hold Large Companies Accountable, and Refrain from Disadvantaging Wholly Domestic and Smaller Businesses
Corporate tax reform is coming. The central question is: what will it look like? After a campaign in which both presidential candidates pledged to close loopholes that allow corporations to dodge taxes and stop companies from booking their profits overseas, is there the political will to do it?
One current proposal in Congress calls for a 0% tax on profits booked offshore. Yes, the proposal is for 0%. That is not a typo. Given the campaign rhetoric, that seems antithetical to cracking down on corporate tax dodging. But that hasn’t stopped Representative John Delaney (D-MD) from pushing a bill that would do just that. Bad enough that House Speaker Paul Ryan (R-WI) and the President-elect have suggested giveaway-corporate-tax rates of between 8% and 10% on offshore profits — but the new starting point appears to be zero.
Sadly, the rate is only a part of the problem and, in some ways, the lesser of the evils. These proposals leave in place all of the loopholes that enable companies to move money and jobs overseas. They allow multinational companies to continue to defer paying taxes on profits booked offshore until the next giveaway — referred to in policy circles as a tax ‘holiday.’ These ‘holidays’ reward a small number of very large corporations — just 30 Fortune 500 companies hold 65% of the estimated $2.6 trillion in offshore profits — with a special tax rate (or no tax rate). That leaves domestic companies, smaller businesses, and individuals to pick up the tab (and, it’s a large tab: Citizens for Tax Justice estimates that Fortune 500 companies now owe more than $700 billion in unpaid taxes on their earnings booked offshore).
