Just in time for Tax Day, OSPIRG released another fine piece of work from our national Budget and Taxes guru Phineas Baxendall. The report-Picking up the Tab: Average Citizens and Small Businesses Pay the Price for Offshore Tax Havens-examines the practice of hiding legitimate U.S. profits and income in offshore tax havens. While this has mostly been discussed as a federal matter, the topic has a big impact on Oregon taxpayers, small businesses and state revenue.
Although consistent information about offshoring is sparse, one well-regarded 2008 study by the U.S. Senate Joint Committee on Investigations estimates that corporations and wealthy individuals avoid paying an estimated $100 billion in federal taxes each year by shifting income to low or no tax offshore tax havens.
When corporations and wealthy individuals hide U.S. income and profits in offshore tax havens, Oregon taxpayers and small businesses end up paying for these lost billions through higher taxes, cuts in public programs or increases to the national debt—totaling the equivalent of $309 per Oregon taxpayer in 2011, or $931 million for all of Oregon.
We illustrate in the report that Oregon’s small business owners—the heart and soul of Oregon’s economy—also lose out. Small businesses don’t have armies of tax lawyers to help them game the tax code. As a result, Oregon’s small businesses are put at a competitive disadvantage when multinational corporations artificially lower their operating costs through tax havens. The OSPIRG report found that the average Oregon small businesses would have to foot a bill equal to $1,571 to cover the cost of the corporate abuse of tax havens in 2011.
These figures do not take into account lost state revenue as a result of offshore tax havens. State determinations of income tax liability largely correspond to federally reported taxable income. Thus, income which gets shifted offshore through the use of tax havens also won’t be subject to income tax in Oregon. Current federal reporting requirements don’t permit precise estimates of these revenue losses for the state of Oregon.
A new federal law, The Foreign Account Tax Compliance Act (FATCA), adopted in March 2010 added new reporting requirements and penalties to discourage individuals, companies and banks from hiding money in offshore tax havens. Once implemented, it is possible the law could provide state officials with new tools to understand the extent of the problem. Unfortunately, the law’s implementation has been delayed numerous times thanks to (gasp!) lobbyists for giant corporations that abuse tax havens.
Legislation in the U.S. House and Senator would get us on the road to closing these loopholes once and for all -- the Stop Tax Haven Abuse Act (H.R. 2669) and Cut Unjustified Tax Loopholes Act (S.2075). Congressmembers Blumenauer and DeFazio are already cosponsors of the House legislation. Click here to send a message to Senators Wyden and Merkley asking them to cosponsor this legislation in the Senate.