GUEST COMMENTARY: Offshore tax loopholes must end to help US budget

Friday, March 1, 2013 | 2:28 p.m. CST

The budget fights in both Washington, D.C., and Jefferson City are looking predictably ugly this year and are shaping up along familiar lines: Do we raise taxes? Do we sink deeper in debt? Which programs do we cut — and how deep?

Fueling these debates are the automatic across-the-board federal spending cuts, which are set to take effect on March 1. These cuts intentionally make no distinction between public priorities and wasteful spending, cutting both with equal abandon. The cuts to military spending and Medicare are getting most of the attention, but the impact doesn’t stop there. Food safety programs would be forced to cancel 2,100 safety inspections, the FBI and other law enforcement agencies would lose the equivalent of 1,000 federal agents, and 1.2 million disadvantaged students would lose education grants.

Fortunately there are other solutions, one of which is hiding in plain sight. Should we really cut food safety, law enforcement and education while the nation’s largest, most profitable corporations use loopholes to avoid paying the taxes they should pay?

Many American corporations and wealthy individuals use complicated accounting tricks to take advantage of loopholes in the tax code, moving their U.S. income to shell companies in tax havens like the Cayman Islands. They pay little or no taxes on those profits, leaving the rest of us to pick up the tab. Each year, the federal treasury loses an estimated $150 billion in revenue to offshore tax havens.

This tax dodging contributes to our state’s budget crisis as well. According to a recent MoPIRG report, Missouri taxpayers lost more than $840 million to offshore tax havens last year. That’s enough money to easily finance the Missouri House plans for highway and infrastructure repair, averting the sales tax proposed for these upgrades, or to have paid the healthcare costs for over 128,000 Missouri residents.

Closing these offshore tax loopholes should be an obvious first step to lessen our budget woes at both the state and federal level. At the federal level, closing tax loopholes would generate more than enough revenue to offset the impending budget cuts entirely.

Unfortunately, the use of tax havens has become standard practice in corporate America. At least 83 of the 100 largest publicly traded American corporations have subsidiaries in tax haven countries. That includes Bank of America, Goldman Sachs, Wells Fargo and JP Morgan Chase — banks rescued by bailouts in 2008, courtesy of American taxpayers — which use a total of 551 offshore subsidiaries to avoid taxes.

Microsoft’s creative accounting is a classic example of how these schemes work. Over a span of three years, Microsoft avoided $4.5 billion in federal income taxes by selling some of its intellectual property rights to a subsidiary in tax-friendly Puerto Rico. This allows Microsoft to pay that subsidiary 47 percent of the revenue from its American sales, moving these profits offshore — even though the profits came from products that were developed and sold in the U.S. It’s all technically legal, but it’s definitely not right.

It’s time for this free ride to end. These companies benefit from our nation’s educated workforce, infrastructure and security, yet they do everything they can to avoid paying what they should. When corporations don’t pay, they dump their tax burden on the rest of us, forcing us to make up the difference through cuts to public services, a bigger deficit or higher taxes.

Closing offshore tax loopholes should be at the top of every lawmaker’s list. With serious budget challenges before us, now is the time to put these tax loopholes to rest.

Alec Sprague is the Midwest Federal Field Organizer for the Missouri Public Interest Research Group. Sprague works on behalf of MoPIRG's members throughout the state on federal issues that impact Missourians.

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John Schultz March 2, 2013 | 5:19 p.m.

Is the author also in favor of eliminating "tax loopholes" that he may enjoy, such as mortgage interest deduction or the child tax credit? Going to a flat tax (I'm not in favor of the fair tax) and eliminating all "loopholes" for everyone is the way to go.

(Report Comment)
J Karl Miller March 2, 2013 | 7:42 p.m.

Mr Sprague,

Perhaps you need to make yourself a bit more familiar with the tax code. Everyone of those dastardly "complicated accounting tricks to take advantage of loopholes in the tax code" have been approved by the United States Congress. I would guess that you take advantage of homeowners taxes and other "loopholes" with which you reduce your own tax liabilities.

(Report Comment)
Ellis Smith March 3, 2013 | 6:41 a.m.

Another way of viewing tax loopholes is that they are subsidies in disguise, except that unlike a deduction for interest on a home loan they are NOT intended to benefit a large segment of the public.

Always consider that members of Congress - both political parties - tend not to be paupers, and their best friends aren't either. :)

There's very large trough within the Beltway, so plenty of pigs are able to partake of what it contains.

FLAT TAX! Lower rates, few if any allowable deductions.

(Report Comment)
Michael Williams March 3, 2013 | 11:37 a.m.

Ellis: "Another way of viewing tax loopholes is that they are subsidies in disguise, except that unlike a deduction for interest on a home loan they are NOT intended to benefit a large segment of the public."

One current "tax loophole" is for research and development....for example, R&D for new technologies, new products (pharmaceuticals), contributions to the University of Missouri to fund basic research, purchase of multimillion dollar equipment, and the like. Businesses are able to take these deductions, which indeed DO reduce state/federal revenue in any given year.

But, I maintain that these "subsidies" do indeed benefit one helluva lot of folks in the form of jobs, innovation, new products, and the like....things that in many cases would NOT occur because there would simply be not enough cash. These "subsidies" have the effect of lowering costs, too. How much would a new pharmaceutical cost per dose if R&D costs received no tax breaks? Or the product of some other new technology?

I do not know the answer to these questions. It is also true that the chain of events that would occur if these R&D loopholes suddenly did not exist is unclear to me, which is the reason I'm writing this post to begin with.

So, I'd like to see some discussion. What are the various proposed limits on corporate tax deductions and, if implemented, what are the effects upon eventual production and cost?

(Report Comment)
Ellis Smith March 3, 2013 | 1:21 p.m.

Is self-financing dead? Ever hear of Schlumberger [pronounced "slumber.jay"], a multinational firm that provides equipment and training to the world-wide oil drilling industry?

Some years ago, in a Q & A interview published in a domestic business magazine their CEO stated that they'd had a banner year but rather than pay a big stock dividend he was going to invest an additional $1 billion in new and continuing research.

I requesed that my financial advisor by me some Schlumberger stock. I was met with some resistance: the stock carried a high per share price and the brokerage only rated the stock as a "hold," not a "buy."

"Buy the %$&@ stock!" So they did. Shortly thereafter the stock split 2 for 1 and the split shares went nowhere but up. I eventually donated most of them to MS&T.

The point here is that somebody had enough faith in both himself and his firm to self-invest, rather than simply making stockholders happy. BTW, last time I checked he's still the CEO.

(Report Comment)
Jimmy Bearfield March 3, 2013 | 4:44 p.m.

"It’s all technically legal, but it’s definitely not right."

Did you write this op-ed using Word? Did you use Google for some of your research? Did you use an iPhone to call a friend for brainstorming help?

If the answer to any or all of these is yes, then you chose to help fund companies that you believe don't pay enough taxes. Why?

(Report Comment)

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