Every year that multinational corporations and wealthy individuals lower their U.S. tax bills by stashing profits in off-shore tax havens, you pay more to cover their tab. The same is true for small businesses.

How much more? U.S.PIRG, the U.S Public Interest Research Group, just released this report that says tax haven abuse cost states and the federal government $184 billion last year. To make that $184 billion more concrete, U.S.PIRG calculates how much each 1040 filer, or every American small business, would have to pay to cover it. Doing the math, the report says, means every 1040 filer would have to kick in (on average) $1,259.

Focusing just on the cost to small business, U.S.PIRG notes the multinationals account for $110 billion of the revenue lost to tax havens. If small American businesses picked up the whole tab their much larger brethren sloughed off, it would cost each nearly $4,000, on average.

GE, Microsoft, Pfizer

U.S.PIRG highlighted the tax-dodging of three very profitable American mulitnationals: General Electric (NYSE: GE), Microsoft (NASDAQ: MSFT), and Pfizer (NYSE: PFE).

According to U.S.PIRG, GE used 18 tax havens last year to stash $110 billion offshore. From 2008 through 2012, GE used its tax haven subsidiaries to produce a -11 percent effective tax rate, even though it was profitable in each of those years. In 2014, GE is using an army of lobbyists to persuade Congress to protect its favorite loopholes.

Microsoft, says U.S.PIRG, avoided paying Uncle Sam $4.5 billion in tax over three years by assigning profits to Puerto Rico. The group says Microsoft will owe $24.4 billion on profits it has stored offshore, through its five tax haven subsidiaries, whenever Microsoft brings that money home.

Pfizer uses 128 tax haven subsidiaries to shield its profits, according to U.S.PIRG, and uses them to shield some $69 billion in profits. Pfizer's accounting is so creative, the group explained, that it "paid no U.S. income taxes between 2010 and 2012 because the company reported losses in the U.S. during those years, despite making 40 percent of its sales in the U.S. and earning $43 billion worldwide."

Congress And The States Can Protect Taxpayers

Much of the tax avoidance by these and other companies and individuals can be stopped by overhauling the tax code. Short of a total overhaul, however, several steps could be taken to reduce the damage.

Congress could simply not re-enact the "extenders", and keep expired loopholes closed. Unfortunately, the track record for the last 17 years suggests the extenders will be passed again, like clockwork. Both houses have started the passage process.

The states could copy Montana and Oregon, and close the "Water's Edge" loophole. A bill currently sits on the Maine Governor's desk that would enable him to stop the offshore games in Maine; he has another day or so to decide whether to veto it.

For now, as you cut your check to Uncle Sam -- or get back what you overpaid -- consider how much better funded our governments could be if the multinationals stopped stashing their cash offshore.

Disclosure: The author helped research and edit a version of this report from 2012

Related Articles
  1. Economics

    4 Massive Frauds You've Probably Never Heard Of

    Here are four historically significant, obscure, large-scale frauds from the previous two centuries.
  2. Taxes

    Why You Should Itemize Your Tax Deductions

    This strategy of moving your tax deductable payments and donations to the following year could mean hundreds more on your return.
  3. Professionals

    Management Strategies From A Top CEO

    Find out what this winning manager did to grow one of the biggest companies in the world.
  4. Markets

    Financial Statement Manipulation An Ever-Present Problem For Investors

    The SEC has taken steps to eliminate this type of corporate fraud, but it remains a real risk for investors.
  5. Economics

    Explaining Corporate Tax

    A corporate tax is a tax levied on the profits a corporation generates.
  6. Professionals

    5 Ways Your Small Business Is at Risk for a Cyber Attack

    Small business owners think they are immune to hacks because of their size, but they are not. When they find the guard is down, hackers are exploiting common weakness.
  7. Taxes

    The 5 Countries Without Income Taxes

    Discover information on some of the best countries to consider relocating to that offer the financial benefit of charging no income tax.
  8. Investing

    Essential Tips on Making Your Hobby Your Career

    Here are some ways to turn what you love to do for fun into your job.
  9. Entrepreneurship

    Why Every Small Business Needs A Website

    The reality of living in the twenty-first century is that customers find business information and product offerings predominantly on websites, and small businesses without an online presence ...
  10. Entrepreneurship

    Want to Open a Small Business? Beware of These

    While all small businesses face long odds, these four types are even less likely to succeed.
  1. Why is the Cayman Islands considered a tax haven?

    The Cayman Islands is one of the most well-known tax havens in the world. Unlike most countries, the Cayman Islands does ... Read Full Answer >>
  2. Why is Luxembourg considered a tax haven?

    Luxembourg has been the tax haven of choice for many corporations and mega-rich individuals around the world since the 197 ... Read Full Answer >>
  3. Why is Panama considered a tax haven?

    The Republic of Panama is considered one of the most well-established pure tax havens in the Caribbean due to extensive legislation ... Read Full Answer >>
  4. How do I get out of my annuity and transfer to a new one?

    If you decide your current annuity is not for you, there is nothing stopping you from transferring your investment to a new ... Read Full Answer >>
  5. Are Cafeteria plans exempt from Social Security?

    Typically, qualified benefits offered through cafeteria plans are exempt from Social Security taxes. However, certain types ... Read Full Answer >>
  6. Why is Andorra considered a tax haven?

    Andorra is one of many locations around the globe considered a tax haven because of its relatively lenient tax laws. However, ... Read Full Answer >>

You May Also Like

Trading Center
You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!