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CHARLESTON, W.Va. – A new report estimates nearly $200 billion a year in revenue is lost to offshore tax havens – enough to not only stop the automatic federal spending cuts threatened for March 1, but also cover all state and local firefighting budgets nationwide for 12 months.
Dan Smith wrote The Hidden Cost of Offshore Tax Havens for U.S. PIRG. He says the consumer advocacy group estimates the U.S. loses a $150 billion a year, and states lose another $40 billion – more than $100 million in West Virginia state taxes alone.
"It's not a victimless offense,” Smith says. “The winners are the big banks, pharmaceuticals and high tech companies. And the losers are small businesses and ordinary taxpayers."
Defenders say the havens help firms dodge a high corporate income tax rate. They say the companies might leave the country completely if the loopholes were closed.
Smith says the dirty secret is few companies pay the full corporate rate. And he says they're unlikely to leave, because the work is done here and the products are sold here.
He adds many corporate subsidiaries are little more than a complicated legal fiction. Products might be created and sold here, but the profits can magically bounce around the world before ending up in a Caribbean P.O. box.
"In the Cayman Islands there is actually a single building, five stories tall, that has nearly 19,000 corporate headquarters registered to it," Smith says.
According to Sean O'Leary, a policy analyst with the West Virginia Center On Budget and Policy, the state has closed one big loophole that had allowed companies to hide profits in other states. But he says it's hard to confirm how much the state loses to offshore tax havens, because companies don't even report the figures.
"If it's $10 million, if it's a $100 million, it's depriving the state of resources,” he says. “Could we be closing these loopholes to fix our budget problems, or should we be cutting things like higher education?"
O'Leary says the system gives the biggest companies an unfair advantage and Smith agrees.
"The small business owner doesn't have a thousand lawyers in its tax department,” Smith says. “That's how many General Electric has. And not surprisingly, that company over a three-year period paid nothing in federal income taxes."
