Budget solution is hiding in the Cayman Islands
By Alec Sprague
The budget fights in Washington, D.C., Frankfort 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?
Fueling these debates are the automatic across-the-board federal spending cuts. These cuts make no distinction between priorities and wasteful spending, cutting both with equal abandon. The cuts to military spending and Medicare are getting most of the attention, but the impact doesn’t stop there. Food safety programs would be forced to cancel 2,100 safety inspections, the FBI and other law enforcement agencies would lose the equivalent of 1,000 federal agents, and 1.2 million disadvantaged students would lose education grants.
Fortunately there are other solutions, one of which is hiding in plain sight. Should we really cut food safety, law enforcement and education while the nation’s largest, most profitable corporations use loopholes to avoid paying the taxes they should pay?
Many American corporations and wealthy individuals use accounting tricks to take advantage of tax-code loopholes, 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 contributes to our state’s budget crisis as well. According to the Indiana Public Interest Research Group, Indiana’s taxpayers lost more than $730 million and Kentucky’s taxpayers lost more than $230 million to offshore tax havens last year. In Indiana, that’s enough money to pay the tuition and fees of over 87,000 in-state students at public four-year colleges.
Closing these loopholes is an obvious first step to lessen our budget woes. At the federal level, closing tax loopholes would generate more than enough revenue to offset the impending budget cuts entirely.
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 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.
It’s time for this free ride to end. These companies benefit from our nation’s educated workforce, 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.
For more on this story go to:
