Seventy two percent of Fortune 500 companies avoid approximately $90 billion in taxes by booking profits to subsidiaries registered in offshore tax havens, according to a report from the ConnPIRG Education Fund and Citizens for Tax Justice. Each year, offshore tax loopholes used by U.S. multinational corporations cost Connecticut $600 million in state tax revenue.
These companies maintain a collective 7,827 tax haven subsidiaries, with 64 percent of the companies stashing their revenue in either Bermuda or the Cayman Islands. With profits safely holed up in territories where taxes are either not levied or eradicated, American multinationals are able to effectively sidestep their own country’s taxation system.
This year, 55 out of the 362 companies publicly disclosed the amount that they were withholding from the nation. According to the report, these companies would collectively owe $147.5 billion in additional federal taxes — the equivalent of the entire state budgets of California, Indiana and Virginia combined.
“Congress has left loopholes in our tax code that allow this tax avoidance, which forces ordinary Americans to make up the difference,” the report states. “Every dollar in taxes that corporations avoid by using tax havens must be balanced by higher taxes on individuals, cuts to public investments and public services, or increased federal debt.”
Several of the companies highlighted by the report are headquartered in Connecticut, including General Electric, United Technologies, Priceline.com and Xerox. As the second-largest offshore profit booker, General Electric holds $110 billion in 18 separate offshore tax havens. Collectively, United Technologies, Priceline and Xerox maintain $38 billion in over 82 different subsidiaries.
For Connecticut citizens, this comes at a hefty price — approximately $900 million a year, according to a previous report. Based on those numbers, the average Connecticut taxpayer will pay an annual sum of $2,537 to cover the billions of safely stashed corporate dollars. The average Connecticut small business owner will pay over three times that amount, with an annual total of $8,094 extra in taxes.
“CT taxpayers, like all taxpayers, pay a price when companies don’t pay their fair share on the federal level, because that means that we have to pay more, receive less services, go more into debt or experience any of the other problems we’re having with our budget,” ConnPIRG Director Abe Scarr said.
“The loopholes in America’s corporate tax (code) have grown so outrageous that our policymakers should be embarrassed,” Steve Wamhoff, legislative director at Citizens for Tax Justice, which studies tax policy and often criticizes corporations, said in a statement.
The report went on to claim that Congress has not thoroughly overhauled the U.S. tax code since 1986, leaving it “riddled with loopholes that corporations, families and individuals can take advantage of.”
Scarr, however, disagreed, citing citizens inability to reap the benefits of tax code loopholes as one of the more major issues.
“Regular taxpayers and small businesses can’t afford the hired army of accountants and lawyers to help them take advantage of the loopholes, and they miss out,” Scarr said.
Though reports from ConnPIRG and other like-minded organizations often portray members of the corporate profit-shifting clubs as using “complicated gimmicks” and “accounting tricks,” the American multinationals are quick to defend itself, with justifications of legality and shareholder interest at the ready.
“There’s no doubt that U.S. corporations use a variety of legal methods to reduce their corporate tax bill on their overseas operations,” the Tax Foundation said in a criticism of the report. “If we are going to reform our tax code, it is best to be informed by the best information available. This study doesn’t cut it.”
From a policy standpoint, legislation to outlaw the shifting of corporate profits seems unlikely since similar proposals have been persistently shot down by Connecticut’s Finance, Revenue, and Bonding Committee for the past twenty-odd years. However, advocates like Scarr continue to hold on to the hope that this year will see a more open-minded state legislature.
“At a time when we’re struggling to balance our budget and dealing with our deficit, closing some of these loopholes would really help Connecticut deal with it’s debt,” Scarr said.