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NJ could save nearly $60 million with simple, proven method to curb offshore tax dodging, new study finds
New Jersey taxpayers could save $59.8 million from a simple reform to crack down on offshore tax dodging, according to a new report released today by the NJPIRG Law & Policy Center. The reform, which has already been proven effective in Montana and passed in Oregon, would require companies to treat profits booked to notorious tax havens as domestic taxable income.
NJPIRG’s new report is titled “Closing The Billion-Dollar Loophole: How States Are Reclaiming Revenue Lost to Offshore Tax Havens.”
“While state revenue projections continue to lag behind projections, New Jersey lost $1.4 billion as a result of the abuse of offshore tax loopholes,” said Jennifer Kim, NJPIRG State Director. “By modernizing our state’s tax code with this simple reform, we can keep millions of dollars in New Jersey every year, while eliminating incentives for moving business offshore, leveling the playing field for local businesses that compete with multinational corporations, and protecting regular taxpayers from picking up the tab for tax dodgers."
For years, some corporations that do business here in New Jersey have dodged taxes by booking profits made in America to tax havens like the Cayman Islands, that levy little to no tax. For example, Merck Pharmaceutical, based here in New Jersey, maintains 151 subsidiaries in known tax havens.
This simple loophole closing uses information that multinational companies already report to states. Montana and Oregon simply treat profits that companies book to notorious tax havens as if it were domestic taxable income. The reform could be introduced anywhere, but is readily available to the 24 states and District of Columbia that have already modernized their tax codes by enacting “combined reporting,” which requires companies to report on how profits are distributed among jurisdictions so that they are taxed based on how much business activity they do in those places. All told, closing this tax haven loophole could save the remaining 22 states including the District of Columbia over a billion dollars annually.
Here in New Jersey, the $59.8 million saved would be enough to pay the salaries of 1,243 additional school teachers (based on average starting salaries in NJ ), or help plug the hole in badly-needed transit infrastructure funding, such as the Transportation Trust Fund.
“Tax dodging is not a victimless offense. When corporations skirt taxes, the public has to make up the difference. That means higher taxes for average taxpayers or cuts to public programs,” added Kim.
To ultimately put an end to offshore tax dodging – which costs the federal Treasury $90 billion annually and state governments $20 billion annually – federal action is required. But Montana and Oregon have shown that states can do more than sit on their hands waiting for Congress to act. The Montana experience (Oregon’s law, which passed last year with strong bipartisan support, will first take effect this year) has shown that this reform is simple to implement, and can play a real role in closing the state budget gap.
As of 2012, at least 82 of the top 100 publicly traded corporations in the U.S. used tax havens, according to an earlier NJPIRG study. American multinational companies collectively hold a staggering $1.9 trillion offshore.
Here are some increasingly notorious ways that some of America’s largest corporations drastically shrink their tax bill:
• Pfizer, the world’s largest drug maker, made 40 percent of its sales in the U.S. over the past five years, but thanks to their use of offshore tax loopholes they reported no taxable income in the U.S. during that time. The company operates 172 subsidiaries in tax havens and has $73 billion parked offshore which remains untaxed by the U.S., according to its own SEC filing. That is the second highest amount of money sitting offshore for a U.S. multinational corporation.
• Google used accounting techniques nicknamed the “double Irish” and the “Dutch sandwich,” according to Bloomberg News. Using two Irish subsidiaries and one in Bermuda, Google helped shrink its tax bill by $3.1 billion from 2008 to 2010.
• Citigroup – a bank that was bailed out by taxpayers during the financial meltdown of 2008 – maintains 20 subsidiaries in tax havens and has $42.6 billion sitting offshore, on which it would otherwise owe $11.5 billion in taxes, according to its own SEC filing. Citigroup currently ranks eighth among U.S. multinationals for having the most money stashed offshore.
According to Dan Bucks, the former chief of Montana Director of Revenue who administered the law for the state from 2005 to 2013, “Montana’s tax haven law brings a measure of tax justice to small businesses, farmers and ranchers, retirees and wage earners who already pay taxes on income they earn in Montana. Without the law, these Montanans would pay more to make up for taxes wrongly avoided by large corporations shifting their Montana income to tax havens.”
“Small business owners know that to build vibrant local economies we have to invest in education, invest in infrastructure, and invest in a healthy customer base,” said Corinne Horowitz, with the New Jersey Main Street Alliance & New Jersey Citizen Action. “When big corporations use tax havens to avoid paying their fair share, they’re starving our state of the resources we need to invest in our local economies and invest in our future.”
You can download the report here: http://njpirgcenter.org/reports/njf/closing-billion-dollar-loophole.
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