Foreign Tax Havens Cost States an Estimated $40 Billion in 2011
New Report Estimates Tax Haven Abuse Cost Wisconsin $814 Million in 2011It has long been known that corporations and individuals are able to dodge federal taxes by sheltering profits in financial institutions in other counties. A new study, which was published last week by the U.S. PIRG Education Fund, also examines the effect on state revenue collections. It estimates that off-shore accounts maintained by corporations and wealthy individuals reduced state tax collections by nearly $40 billion in 2011. That’s on top of an estimated $150 billion that year in lost federal tax revenue.The report’s authors estimate that foreign tax havens cost Wisconsin $814 million of tax revenue in 2011. That’s the 15th highest amount among all the states.This federal issue filters down to the state level because states typically link their own tax policies to federal law. Because it’s unlikely that Congress can get past its gridlock and address the problem anytime soon, U.S. PIRG’s study urges states to consider taking steps to alleviate the problem by decoupling from federal law. Since many lawmakers have been talking about making significant tax reforms this session, the report strikes me as very timely. I’m not sure how reliable the revenue estimates are or how practical it would be for states to remedy this revenue loss by decoupling, but I think it’s a tax reform idea that’s worth serious consideration. Some of the other findings in the report include the following:
- Multinational corporations account for more than $26 billion of the lost tax revenue, and wealthy individuals account for the rest of the $39.8 billion total.
- Some of the largest companies in the United States use tax havens, including many that have taken advantage of government bailouts or rely on government contracts. As of 2008, 83 of the 100 largest publicly traded corporations in the United States maintained revenues in offshore tax havens, according to the Government Accountability Office.
- At the end of 2011, 290 of the top Fortune 500 companies using tax havens collectively held $1.6 trillion in profits outside the U.S. – up from $1.1 trillion in 2009 – according to Citizens for Tax Justice.
You can find the full report here.Jon Peacock