Would-be tax money is living large overseas.
This is incredible—the largest companies in America are avoiding approximately
$620 billion in taxes:
he 500 largest American companies hold more than $2.1 trillion in accumulated profits offshore to avoid U.S. taxes and would collectively owe an estimated $620 billion in U.S. taxes if they repatriated the funds, according to a study released on Tuesday.
Can you imagine what our citizens could to with an extra $620 billion in tax revenue? Maybe our veterans could get the care they need. Maybe we could lower unemployment and strengthen the middle class with a real jobs bill—one that might repair the approximately
63,000 structurally-deficient bridges in the United States. Maybe teachers in places like Seattle could get an income that would actually allow them to
afford to live in the city where they work. The list could go on and on.
And the companies moving profits overseas have created a complicated shell game with their profits stash:
Some companies that report a significant amount of money offshore maintain hundreds of subsidiaries in tax havens, including the following:
-PepsiCo maintains 132 subsidiaries in offshore tax havens. The soft drink maker reports holding $37.8 billion offshore for tax purposes, though it does not disclose what its estimated tax bill would be if it didn’t book those profits offshore.
-Pfizer, the world’s largest drug maker, operates 151 subsidiaries in tax havens and officially holds $74 billion in profits offshore for tax purposes, the fourth highest among the Fortune 500. Pfizer recently attempted the acquisition of a smaller foreign competitor so it could reincorporate on paper as a “foreign company.” Pulling this off would have allowed the company a tax-free way to use its supposedly offshore profits in the U.S.
-Morgan Stanley reports having 210 subsidiaries in offshore tax havens. The bank officially holds $7.4 billion offshore. It has also been infamously implicated in facilitating individual tax evasion through its Swiss banking division.
This should be illegal. Companies should not be allowed to flourish and profit in the U.S. without paying their fair share—like most of us citizens are forced to do. Throughout U.S. history, others have
rightly noted the same:
"Taxes are what we pay for civilized society.'' — Oliver Wendell Holmes, Jr., U.S. Supreme Court Justice
"The power of taxing people and their property is essential to the very existence of government.'' — James Madison, U.S. President
Dodging taxes in the name of extreme profit isn't just unpatriotic, it ought to be illegal.
Here's how they get away with it:
Companies can avoid paying taxes by booking profits to a tax haven because U.S. tax laws allow them to defer paying U.S. taxes on profits that they report are earned abroad until they ”repatriate” the money to the United States. Many U.S. companies game this system by using loopholes that allow them to disguise profits actually made in the U.S. as “foreign” profits earned by subsidiaries in a tax haven.
Offshore accounting gimmicks by multinational corporations have created a disconnect between where companies locate their actual workforce and investments, on one hand, and where they claim to have earned profits, on the other. The Congressional Research Service found that in 2008, American multinational companies collectively reported 43 percent of their foreign earnings in five small tax haven countries: Bermuda, Ireland, Luxembourg, the Netherlands, and Switzerland. Yet these countries accounted for only 4 percent of the companies’ foreign workforces and just 7 percent of their foreign investments. By contrast, American multinationals reported earning just 14 percent of their profits in major U.S. trading partners with higher taxes — Australia, Canada, the UK, Germany, and Mexico — which accounted for 40 percent of their foreign workforce and 34 percent of their foreign investment.[v] The IRS released data last year showing that American multinationals collectively reported in 2010 that 54 percent of their foreign earnings were “earned” in 12 notorious tax havens (see table 4).[vi]
The study concludes by calling on Congress to take aggressive action:
Strong action to prevent corporations from using offshore tax havens will not only restore basic fairness to the tax system, but will also alleviate pressure on America’s budget deficit and improve the functioning of markets. Markets work best when companies thrive based on their innovation or productivity, rather than the aggressiveness of their tax accounting schemes.
Policymakers should reform the corporate tax code to end the incentives that encourage companies to use tax havens, close the most egregious loopholes, and increase transparency so companies can’t use layers of shell companies to shrink their taxes.
Seems like basic common sense, no?