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Hartford – With Connecticut in the midst of ongoing budget challenges, ConnPIRG, joined by Representatives Bryan Hulburt, Susan Johnson and Diana Urban, released a new study revealing that Connecticut lost $904 Million due to offshore tax dodging in 2012. Many of America’s wealthiest individuals and largest corporations, including Connecticut companies General Electric, Aetna, Hartford Financial Services, Travelers and United Technologies use tax loopholes to shift profits made in America to offshore tax havens, where they pay little to no taxes.
“Tax dodging is not a victimless offense. When corporations skirt taxes, the public is stuck with the tab. And since offshore tax dodgers avoid both state and federal taxes, they hurt everyday taxpayers twice,” according to Abe Scarr, ConnPIRG Education Fund Director “Connecticut should be using that money to benefit the public.”
All told, state taxpayers across the country lost nearly $40 billion last year from offshore tax loophole abuse. To put that amount in context, $40 billion roughly equals the total amount spent by all state and local governments on firefighters in 2008. It’s also enough money to cover the educational costs for 3.7 million children for one full year.
The $904 million lost in Connecticut would have been enough to fund the salaries of 13,000 Connecticut school teachers, or cover more than a quarter of the $3.12 billion Governor Malloy requested from the federal government for Hurricane Sandy infrastructure improvements, and is more than last year’s combined state budgets for the departments of Environmental Protection, Mental Health, Public Health, and Libraries.
Tax havens are used by both wealthy individuals and corporations. In Connecticut, $587 million is lost from the corporate abuse of tax havens and $318 million from individuals.
As of 2008, at least 83 of the top 100 publicly traded corporations in the U.S. used tax havens, according to the Government Accountability Office. At the end of 2011, 290 of the top Fortune 500 companies reported that they collectively held a staggering $1.6 trillion offshore. By using offshore tax havens, corporations and wealthy individuals shift the tax burden to ordinary Americans, forcing us to make up the difference through cutting public services, growing our already big deficit, or raising taxes on everyday citizens.
At the national level, offshore tax loopholes cost federal taxpayers $150 billion each year, which would be more than enough to cover the scheduled spending cuts that are set to take effect in just a few weeks.
“Some budget decisions are tough, but closing the offshore tax loopholes that let large companies shift their tax burden to the rest of us is a no-brainer,” Scarr added.
States should not wait for federal action to curb tax haven abuse. The study proposes several policy solutions that states should explore right away, including:
- Decoupling state tax systems from the federal tax system;
- Requiring worldwide combined reporting for multinational corporations;
- Requiring increased disclosure of financial information; and
- Withholding state taxes as part of federal FATCA (Foreign Account Tax Compliance Act) withholding.
One of these policy solutions is already on the table in Connecticut. In his August 20th 2012 testimony before Governor Malloy’s Business Tax Task Force, Comptroller Kevin Lembo included combined reporting as the second of his thirteen recommendations. Representative Susan Johnson has proposed a bill, proposed bill 6176, to require combined reporting.
Here are some increasingly notorious ways that some of America’s largest corporations drastically shrink their tax bill:
- Google used accounting techniques nicknamed the “double Irish” and the “Dutch sandwich,” which involved two Irish subsidiaries and one in Bermuda, to help shrink its tax bill by $3.1 billion from 2008 to 2010.
- Wells Fargo paid no federal income taxes in 2008, 2009, and 2010, despite being profitable all three years, largely due to its use of 58 offshore tax haven subsidiaries.
- Microsoft avoided $4.5 billion in federal income taxes over three years by using sophisticated accounting tricks to artificially shift its income to tax-friendly Puerto Rico. The company pays its Puerto Rican subsidiary 47% of the revenue generated from its American sales, despite the fact that those products were developed and sold in the U.S.
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