Big government budget solution hiding in the Caymans
By Alec Sprague, South Bend Tribune
The budget fights in both Washington, D.C., and Indianapolis are looking predictably ugly this year, and are shaping up along familiar lines: Do we raise taxes? Do we sink deeper in debt? Which programs do we cut, and how deep?
While legislators debate taxes and spending, some of America’s largest corporations and wealthy individuals are avoiding the taxes they owe — and it’s hitting Indiana especially hard.
These corporations and wealthy individuals use complicated accounting tricks to take advantage of loopholes in the tax code, moving their U.S. income to shell companies in tax havens like the Cayman Islands. They pay little or no taxes on those profits, leaving the rest of us to pick up the tab. Each year, the federal Treasury loses an estimated $150 billion in revenue to offshore tax havens.
This tax dodging is also contributing to our state’s budget crisis. According to a recent report from the Indiana Public Interest Research Group, Indiana’s taxpayers lost more than $730 million to offshore tax havens last year. That’s enough money to pay the tuition and fees of more than 87,000 in-state students at public four-year colleges in Indiana.
Closing these offshore tax loopholes should be an obvious first step to lessen our budget woes at both the state and federal level. At the federal level, closing tax loopholes would have generated more than enough revenue to offset the across-the-board spending cuts that went into effect earlier this month.
Unfortunately, the use of tax havens has become standard practice in corporate America. At least 83 of the 100 largest publicly traded American corporations have subsidiaries in tax haven countries. That includes Bank of America, Goldman Sachs, Wells Fargo, and JP Morgan Chase — banks rescued by bailouts in 2008, courtesy of American taxpayers — which use a total of 551 offshore subsidiaries to avoid taxes.
Microsoft’s creative accounting is a classic example of how these schemes work. Over a span of three years, Microsoft avoided $4.5 billion in federal income taxes by selling some of its intellectual property rights to a subsidiary in tax-friendly Puerto Rico. This allows Microsoft to pay that subsidiary 47 percent of the revenue from its American sales, moving these profits offshore — even though the profits came from products that were developed and sold in the U.S. It’s all technically legal, but it’s definitely not right.
The good news is that momentum to close these loopholes is building. A couple of weeks ago, the Senate passed an amendment to its budget demonstrating strong bipartisan support for closing these loopholes. We applaud Sens. Carl Levin, D-Mich., John McCain, R-Arizona, and Sheldon Whitehouse, D-R.I., for proposing an amendment to the budget resolution that gives budget writers the authority to “end offshore tax abuses used by large corporations.” Sens. Sherrod Brown, D-Ohio, and Bernie Sanders, I-Vermont, each offered similar amendments.
It’s time for this free ride to end. These companies benefit from our nation’s educated work force, infrastructure and security, yet they do everything they can to avoid paying what they should. When corporations don’t pay, they dump their tax burden on the rest of us, forcing us to make up the difference through cuts to public services, a bigger deficit, or higher taxes.
Closing offshore tax loopholes should be at the top of every lawmaker’s list. With serious budget challenges before us, now is the time to put these tax loopholes to rest.
Alec Sprague is the Midwest federal field organizer with INPIRG, the Indiana Public Interest Research Group, an independent statewide student organization that works on issues such as environmental protection, consumer protection and hunger and homelessness.
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