Close Corporate Tax Loopholes Updates

When U.S. corporations and wealthy individuals use offshore tax havens to avoid paying taxes to the federal government, it is an abuse of our tax system. Tax haven abusers benefit from our markets, infrastructure, educated workforce, and security, but they pay next to nothing for these benefits. Ultimately, taxpayers must pick up the tab, either in the form of higher taxes, cuts to public spending priorities, or increased national debt.

Tax havens are countries or jurisdictions with minimal or no taxes. Corporations and individuals shift earnings to financial institutions in these countries to reduce their U.S. income tax liability—costing the federal government $150 billion in lost revenues each year.

Federal taxpayers are not the only victims of offshore tax havens. Tax havens deprive state governments of billions of dollars in badly needed revenues as well. Based how much income is federally reported in each state, and on state tax rates, it is possible to calculate how much each of the state governments lose as a result of offshore tax dodging. In 2012, the state of Illinois lost $2.5 billion.

BP’s recent $4.5 billion legal settlement with the Justice Department for its misdeeds in the Gulf oil spill was historic for being the largest ever criminal settlement. But it was historic for another reason as well—none of it is allowed to be tax deductible. Unfortunately, too many settlements for wrongdoing end up as tax deductions.

Tax avoidance costs the federal government $150 billion in tax revenue each year. Illinois PIRG released new data illustrating the size of this loss with 16 dramatic initiatives for which the $150 billion could have paid and also by demonstrating the impact of this amount on the fiscal cliff.

Some U.S.-based multinational firms or individuals avoid paying U.S. taxes by transferring their earnings to tax haven countries with minimal or no taxes. These tax haven users benefit from their access to America’s markets, workforce, infrastructure and security; but they pay little or nothing for it—violating the basic fairness of the tax system and forcing other taxpayers to pick up the tab.