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
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