States with budget shortfalls are struggling to account for the revenue gaps. One way to boost their economic health would be for states and the federal government to close corporate tax loopholes, writes an official for a nonprofit consumer group. A certified public accountant suggests changes in the U.S. tax code would raise revenue but might also cause substantial job losses.
The budget fights in Washington, D.C., and Atlanta are looking predictably ugly this year, and shape up along familiar lines: Do we raise taxes? Do we sink deeper in debt? Which programs do we cut? How deep?
Fueling these debates are the automatic across-the-board federal spending cuts taking place around the country. These cuts make no distinction between public priorities and wasteful spending, cutting both with equal abandon. 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.
Should we really cut food safety, law enforcement and education while the nation’s largest, most profitable corporations use loopholes to avoid paying taxes they should?
Many American corporations and wealthy individuals use accounting tricks to take advantage of loopholes in the tax code, such as moving their U.S. income to shell companies in tax havens like the Cayman Islands. They pay little or no taxes on those profits. 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. According to a recent report by the Georgia Public Interest Research Group, Georgia taxpayers lost more than $918 million to offshore tax havens last year. That’s enough money to pay salaries for an additional 17,381 teachers, or to chop about 18 percent off the state sales tax.
Closing offshore tax loopholes should be an obvious first step to lessen our state and federal budget woes. At the federal level, closing tax loopholes would generate more than enough revenue to offset impending budget cuts entirely.
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 havens.
Over a span of three years, for example, 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, effectively moving these profits offshore — even though Puerto Rico is U.S. territory, and the profits came from products developed and sold in the U.S. It’s technically legal, but 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 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 tax loopholes to rest.
