With Tax Day approaching, it’s a good time to be reminded of where our tax dollars are going. Illinois PIRG released a new study that revealed the average Illinois taxpayer in 2012 would have to shoulder an extra $1,058 in taxes to make up for the revenue lost due to the use of offshore tax havens by corporations and wealthy individuals.
Some U.S.-based multinational firms and individuals avoid paying U.S. taxes by using accounting tricks to shift profits made in America to offshore tax havens—countries with minimal or no taxes. They 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.
Even when tax haven abusers act perfectly legally, they force other Americans to shoulder their tax burden. Every dollar in taxes they avoid by using tax havens must be balanced by other Americans paying higher taxes, coping with cuts to government programs, or increasing the federal debt.
Academic studies conclude tax haven abuse costs the United States approximately $150 billion in tax revenues every year. Multinational corporations account for $90 billion and individuals the rest.
With Illinois in the midst of a budget crisis, the Illinois PIRG Education Fund, joined by the Small Business Advocacy Council; Gail Glasser, a small business owner; and the Chicago Political Economy Group, released a new study revealing that Illinois lost $2.5 billion due to offshore tax dodging in 2012. Many of America’s wealthiest individuals and largest corporations use tax loopholes to shift profits made in America to offshore tax havens where they pay little to no taxes.
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.
A report released today spotlights a common practice where corporations that commit wrongdoing and agree to financial settlements with the federal government, go on to claim such settlement payments as tax-deductible business expenses. The new study, released by the Illinois Public Interest Research Group (Illinois PIRG), follows a record year of corporate settlements, while many more settlements relating to banking, environmental, and consumer safety issues are expected.
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.
Illinois PIRG’s report “Jobs and TIF: An Analysis of Job Creation and Tax Increment Financing” analyzes the records of 21 TIF-funded projects from the last decade with the biggest number of promised jobs – each project examined was required to create at least 200 jobs. The report checked to see whether the city is making sure developers are living up to their promises.
Since TIF projects are typically justified byusing their purported job-creation benefits, and because the number of jobs created is relatively easy for the city to track, we obtained and examined records on projects with job-creations requirements above 200 from in the years 2000 through 2010. These projects should ought to be the most scrutinized TIF projects in the city. The results suggest, however, that Chicago’s TIF programs remain largely impervious to scrutiny and unaccountable to the public. The findings show that among projects that promised to create the most jobs, there are unacceptably low levels of tracking and enforcement:
• The city could demonstrate consistent tracking of job-creation for only three (14 percent%) of these major TIF projects
• Out of 21 projects with some kind of jobs goal, 15 (71 percent%) did not provide annual evidence that the jobs goals were being met, but the city only asked only two2 of the projects to give money back.
• Not a single project complies with existing the 2009 “Sunshine Ordinance” that requires posting of five5 major documents online; most projects provide less than half.
• A significant number of projects (19 percent%) did not even have specific job-creation goals in their official agreements with the city.
To show the relative degree of overall transparency and accountability for each project, we created a scorecard to assign each a letter grade from “A” to “F” based on four criteria: whether enforceable standards were created, whether the developers hit their jobs goals and reported it to the city, whether the city reclaimed the TIF funds in instances where developers failed to hit their jobs goals, and whether all the information required to be available to the public is accessible.
A new report released today found little tracking or enforcement of taxpayer subsidized private development projects that had promised job creation. The analysis by the watchdog group Illinois PIRG comes one year after Mayor Emanuel’s Tax Increment Financing (TIF) Reform Panel released recommendations for how to fix the wasteful economic development program and underscores the need to implement reform to protect taxpayers.
In the City Council meeting held today, the council voted to enact two ordinances approving new TIF projects. With so much taxpayer money being spent, one would expect a transparent and thorough analysis of the projects to ensure they are worthwhile. But for the most part, specifics are unavailable to the public.