The Real Welfare Queens
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The Real Welfare Queens by bartcop.com
Image courtesy of bartcop.com.
It has been widely reported since at least 2010 that U.S. corporations and the wealthiest Americans have taken advantage of tax loopholes by hiding their assets in offshore subsidiaries (a.k.a. tax havens) in order to avoid paying U.S. income taxes. The amount of money hidden in these tax havens and what the lost revenue means to the American people has not been so widely reported.
According to several sources, including the BBC, the non-partisan Congressional Research Service (CRS) and James Henry, former Chief Economist at McKinsey & Company, the top 1% of wealthiest Americans and corporations have deposited between $21 and $32 trillion in tax havens in order to evade U.S. taxes. The top seven U.S. banks, furthermore, account for over $10 trillion in assets in more than 10,000 overseas subsidiaries.
Assuming these figures are correct, if all of these assets were taxable, then the U.S. could collect billions, perhaps trillions in additional revenue each year.
Data from the Bank of International Settlements (BIS), the International Monetary Fund (IMF), the World Bank, and several governments are used in that assessment. (See video at source). CRS's report focuses on five small countries generally considered to be tax havens (the Netherlands, Luxembourg, Ireland, Bermuda and Switzerland) and compares them to five of the top "traditional" foreign countries where American companies actually do business (Canada, Germany, the United Kingdom, Australia and Mexico).
While any knowledgeable person knows that U.S. multinational corporations engage in tax avoidance by shifting their profits into tax havens, not many know exactly how that is done. The waters are further muddied by CEOs and corporate lobbyists who either deny that outright or use the standard industry mantra: "Our company pays all applicable taxes in every jurisdiction where we operate."
The practice of using tax havens is somewhat simple and is legal under current tax codes, but that does not make the practice morally right or even ethical. Corporations and banks simply need to shift their profits by conducting transactions in countries with little or no corporate taxes. U.S. tax codes allow a "deferral" on paying taxes in the U.S. until the funds are actually brought back to the U.S. and in most cases, they never are.
A classic example of tax haven abuse is the common practice of registering subsidiaries in the Cayman Islands. With more than 85,000 companies registered there, it is one of the few territories in the world that has more organizations than inhabitants.
Mitt Romney's Caymen Island accounts garnered some scrutiny during last year's Presidential election. Facebook sheltered $700 million in the Cayman Islands in 2012, while posting over $1 billion in profits and paying no taxes in the US. In fact, 26 of the 30 largest U.S. corporations that utilize subsidiaries paid no income tax between 2008 and 2011, including GE, Boeing, Verizon, Bank of America and Goldman Sachs. The banks on the list, ironically, were bailed out by U.S. taxpayer money.
It can be correctly argued that the U.S. has the highest corporate tax rate in the world at 39.2% when both federal, state and local taxes are included. That, however, means very little in terms of actual taxes paid when corporations and the top 1% hide most of their profits and assets in offshore tax havens. Smaller corporations, small businesses and the bottom 99% of individuals are generating more than their fair share of revenue than are large corporations and the top 1%.
Conservative estimates of lost federal revenue due to offshore tax havens are about $150 billion per year, but that does not take into account what the states lose. A U.S. Public Interest Research Group (PIRG) report estimated that states lost nearly $39.8 billion in revenues in 2011, bringing the total to about $190 billion annually. Of that total, corporations were responsible for about 65% in lost revenues to tax havens, while wealthy individuals were responsible for the rest.
To put that in perspective, $39.8 billion would cover education costs for more than 3.7 million children for one year. This sum is also roughly equivalent to total state and local expenditures on firefighters ($39.7 billion) or on parks and recreation ($40.6 billion) in 2008. The U.S. national debt is closing in on $17 trillion and the sequester cuts total about $22 billion. $150 billion in additional federal revenue would make sequester a moot point and remove austerity from the national political vocabulary. The government could then move on to addressing the real problem in the economy -- lack of well-paying jobs.
In his book, The End of Poverty, Jeffrey Sachs estimated that in order to end extreme world poverty it would cost $175 billion per year for the next 20 years, a total of $3.5 trillion. In other words, the wealthiest corporations and individuals have enough in offshore tax havens that they could do that now and still retain most of their assets. Taxing 65% of between $21 and $32 trillion in profits and assets at a rate of 39.2% could also provide more than enough to do that.
Dropping food instead of bombs on impoverished nations, true humanitarian projects such as helping to provide clean drinking water and electricity, instead of facilitating regime change in third world countries, may help to repair the U.S. image in the world and reduce terrorism. A better world image may even reduce the need to spend more on defense than the next 13 nations combined. As things stand now, unfortunately, the U.S. does not have enough revenue to help its own people.
The same businesses that avoid paying taxes are also the ones that benefit from educated American workers, an infrastructure that aids in the transportation of goods, services and transactions, and the security that the publicly-funded police and military provide on both a local and global level.
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