The amount the average American small business had to pay in 2011 to cover the cost of corporate abuse of tax havens was $2,116.
The amount an individual tax filer had to pay was $426.
Both are the findings of a report by U.S. PIRG, the federation of state public interest research groups, which says that every year, corporations and wealthy individuals avoid paying an estimated $100 billion in taxes by shifting income to offshore tax havens. Of that $100 billion, $60 billion is avoided specifically by corporations. A study by the General Accounting Office found that at least 83 of the top 100 publicly traded corporations use offshore tax havens.
“When corporations shirk their tax burden by shifting profits legitimately made in the U.S. to offshore tax havens like the Caymans, the rest of us must pick up the tab through either cuts to public spending priorities, higher taxes or more debt,” said Dan Smith, tax and budget associate for U.S. PIRG and one of the report”™s co-authors. Smith went on to say that small businesses are hurt additionally by corporate tax dodging “since they can”™t hire armies of well-paid lawyers and accountants to use offshore tax loopholes.”
Bruce Kaminstein is CEO of Casabella Holdings in Congers, N.Y., a household furnishings company with 70 employees and $40 million in yearly sales. “It”™s frustrating to know we are subsidizing their tax bills.” he said. “We get very little in tax breaks. We all play by the rules of the game. I think government is completely unaware of the tax burden on small businesses.”
PIRG calculated that if the $60 billion burden from multinational companies using tax havens was shouldered entirely by small businesses, each state”™s small businesses would have to chip in hundreds of millions or even billions of dollars more. The largest total sum would be borne by small businesses in California, $7 billion, with New York right behind, at $5.2 billion.
PIRG also detailed what it felt were some of the more extreme tax avoidance strategies:
- eBay got a $131 million tax refund in 2010, despite reporting pre-tax profits of $848 million to its shareholders and paying its CEO $12 million. Its tax avoidance strategies include 31 subsidiaries in nine tax havens.
- Wells Fargo avoided paying almost $18 billion in federal income tax from 2008-2010, partly by using 58 subsidiaries in offshore tax havens. Meanwhile, from 2008-2010, Wells Fargo reported $49 billion in profit to shareholders. And even with the profits and tax subsidies, as of the end of 2010, Wells Fargo still had not repaid $5 billion in bailout money.
- Prudential Financial got a federal income tax refund of $722 million in 2010, despite reporting $2.4 billion in profits that year. It uses 36 tax haven subsidiaries.
Last November, a study by Citizens for Tax Justice and the Institute on Taxation and Economic Policy issued a study of the federal income tax paid, or not paid by 280 profitable Fortune 500 corporations. It found that 30 of the companies paid no federal income tax from 2008 to 2010. In 2011, all but four of them paid no tax. General Electric was second on the list, with a negative federal income tax rate of 45.3 percent from 2008 to 2010, and a rate of minus 18.9 percent for the four-year period including 2011. The study found that it has paid virtually nothing in federal income taxes over the past decade. A negative income tax rate means the company made more money after tax than before tax. GE”™s low taxes are mainly due to the tax situation of its finance arm, GE Capital, which makes big profits, but generates big tax “losses” that reduce its taxable income from its other businesses.
“GE Capital does a lot of things, a lot of leasing,” said Bob McIntyre, director of Citizens for Tax Justice. “A company that wants to buy a nuclear power plant gets GE to be the owner and leases it back. GE Capital gets to take the depreciation and the interest deductions. You put those together, it not only makes leasing profits tax free, but they get excess tax breaks they can use to shelter the rest of their income. Their tax breaks exceed their income. They throw off tax breaks like crazy. They”™re the poster child that got Reagan interested in tax reform. We closed the loopholes for a while, but they lobby and get them reinstated.”
Phineas Baxandall is senior analyst for tax and budget policy for U.S. PIRG. He said attempting to close loopholes is a “clumsy technique” for trying to make corporations pay their taxes. “More effective are more sweeping recommendations,” he said. With regard to offshore tax havens, he said that “if a company has management and control in the U.S., then it should be taxed in the U.S., as opposed to creating a P.O. box somewhere and saying that the economic activity is happening where the P.O. box is in the Cayman Islands.”
