Some States Tackle Corporate Tax Havens
Report Released Today Recommends State and Federal Reforms to Close Offshore Tax Havens
Maine legislators recently gave preliminary approval to a bill that could make it the third state to pass legislation to crack down on corporate tax avoidance in off-shore tax havens. The proposed legislation would close the so-called “water’s edge” loophole by requiring corporations to report income from a list of 38 known offshore tax havens. Passage of the bill would generate an estimated $10 million per year (in a state less than a quarter of the size of Wisconsin).
Oregon and Montana have already enacted such legislation. In 2010, Montana recovered $7.2 million, and state analysts expect Oregon to recover $18 million this year. The problem costs states about $1 billion, according to a report by US PIRG report. You can read more about the bills in these three states in an April 3 Washington Post blog post.
In early March, Rep. Cory Mason and Senator Fred Risser introduced a bill, AB 844, which would make similar changes to the Wisconsin tax code. It didn’t get a public hearing, but I think it will be reintroduced next session. According to a Legislative Fiscal Bureau memo, making this tax reform in Wisconsin could save more than $28 million annually.
A study released today by WISPIRG calculates that the average Wisconsin taxpayer in 2013 would have to shoulder an extra $1,054 in taxes to make up for the revenue lost due to the use of offshore tax havens by corporations and wealthy individuals. According to the WISPIRG press release:
“Average taxpayers and small business owners foot the bill for offshore tax dodging. Every dollar in taxes companies avoid by booking profits to shell companies in tax havens must be balanced by cuts to public programs, higher taxes for the rest of us, or more debt,” said Bruce Speight, WISPIRG Director.
The WISPIRG report says “the average Wisconsin small business would have to pay $3,966 to cover the cost of offshore tax dodging by large corporations. Offshore tax havens give large multinationals a competitive advantage over responsible small businesses which don’t have subsidiaries in tax havens to reduce their tax bills.”
The revenue losses are even larger at the federal level. A 2013 report from the nonpartisan Congressional Research Service says the estimated federal tax avoidance from corporate and individual use of foreign tax havens is in the range of $50 billion to $130 billion per year. Unfortunately, early this month the Senate Finance Committee voted to renew two particularly problematic offshore loopholes that will cost $8 billion in lost revenue over the next two years.
The WISPIRG report recommends closing a number of offshore tax loopholes. Many of those tax reforms are included in the Stop Tax Haven Abuse Act, which was introduced in the U.S. Senate by Senator Levin (S.1533) and in the House by Rep. Doggett in the House (H.R. 1554).
Read more about tax avoidance by some of Wisconsin‘s largest corporations in our March 20th blog post.