Offshore Tax Dodges that Cost California $7.1 Billion Seem Off Limits to Reform

Friday, February 08, 2013

In a political landscape saturated with pitched battles over balancing budgets, offshore tax havens have managed to maintain advantages for corporations and wealthy individuals that cost California and the nation billions of dollars each year.

The California Public Interest Research Group’s Education Fund (CALPIRG) calculated that offshore tax havens diverted $39.8 billion from state coffers across the nation in 2011, led by California’s loss of $7.1 billion. The federal government lost $150 billion. Corporations were responsible for $26 billion in lost revenues and individuals accounted for the rest.

As of 2008, 83 of the country’s 100 largest publicly-traded corporations used offshore tax havens. The U.S. Government Accountability Office reported that 11 corporations in California used 148 subsidiaries located in tax havens that year. They were Apple, Chevron, Cisco Systems, Countrywide Financial, Hewlett-Packard Company, Ingram Micro, Intel, McKesson Corporation, Safeway, Walt Disney and Wells Fargo.

Citizens for Tax Justice calculated that 290 of the Fortune 500 stashed $1.6 trillion in profits outside the U.S. by the end of 2011. State tax codes are closely linked to the federal code, so offshore profits that go unreported to Uncle Sam generally slip by the states, too.

California was the only Western state among the top 10 big tax losers. New York was second ($4.3 billion), followed by New Jersey ($2.8 billion), Illinois ($2.5 billion),  Pennsylvania ($2.1 billion), Minnesota ($2.0 billion), Massachusetts ($1.7 billion), North Carolina ($1.0 billion), Florida ($979 million) and Maryland ($966 million).

Tax havens are jurisdictions with low or non-existent taxes where corporations and people of wealth can transfer earnings to avoid domestic taxation. Foreign subsidiaries of U.S. companies are not taxed until the money comes back to the United States. Companies can use them and myriad tax strategies for moving money offshore to countries like Switzerland and territories like Bermuda and the Cayman Islands, where financial secrecy laws shield them from prying eyes.

Rich folks can dodge taxes by setting up trusts and offshore shell corporations to park their money.    

Democratic Senator Carl Levin has indicated he plans to introduce legislation that will close tax loopholes and penalize corporations that use tax havens. Levin estimated his proposals would bring in about $20 billion a year to the federal government, 13% of what CALPIRG figures tax havens cost the U.S. treasury.

His proposal, and a few others like it, may or may not be attached to larger bill during upcoming negotiations aimed at avoiding automatic sequestration of funds that will slash expenditures across the board beginning March 1. Prospects for passage are not bright. 

–Ken Broder

 

To Learn More:

The Hidden Cost of Offshore Tax Havens (CALPIRG Education Fund) (pdf)

Offshore Tax Dodging Blows a $7 Billion Hole in California Budget (CALPIRG Education Fund)

Offshore Tax Loopholes Cost States $40 Billion (by Brianna Ehley, The Fiscal Times)

The Price of Offshore Revisited (Tax Justice Network) (pdf)

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