- The U.S. government’s main watchdog on Monday reported that U.S. corporations are paying taxes on less than half of their declared income, largely due to dozens of tax breaks that have come under increased scrutiny in recent months.
The Government Accountability Office (GAO) is reporting that U.S. companies received tax breaks worth around 181 billion dollars in 2011, slightly more than what they paid in taxes. That figure would make up the largest such sum since a major rewrite of the U.S. tax code took place in the mid-1980s.
A significant part of these breaks are due to a legal exemption under which U.S. companies are not required to pay taxes on income earned overseas until it is brought back into the country. Yet corporations have increasingly been accused of misusing this exemption, misreporting overseas income or lodging it in countries with low or loose tax regulations.
“It’s extremely important that corporate tax expenditures receive the same level of scrutiny as any spending item,” Dan Smith, a budget researcher at U.S. PIRG, an advocacy group, told IPS.
“Often these things get inserted at the last minute behind closed doors, and the public can’t scrutinise whether they are in the public interest. Some of the largest companies are regularly exploiting these loopholes to make it look as though income they make here is getting made in another country.”
The results are an estimated 150-billion-dollar loss to the U.S. Treasury per year – a massive amount at a time of debt anxiety and austerity measures now threatening to bite heavily into public programmes. Indeed, an important component of the current debt debate here involves overhauling and simplifying the U.S. tax code, including closing loopholes.
Similar discussions are increasingly taking place in capitals around the world, and leading to real new regulation and legislation.
Also on Monday, the deadline by which U.S. citizens are required to file their individual taxes, U.S. Representative Lloyd Doggett unveiled a package of legislative proposals, backed by 45 co-sponsors, aimed at closing a series of loopholes in the U.S. tax code and deterring the use of overseas tax havens.
"Over a three-year period, 30 [top] companies devoted more of their monies to lobbying this Congress than they did in paying taxes to the Treasury,” Doggett, one of two members of Congress to request the new GAO report, said in a Congressional hearing Monday. “Some have a negative tax rate. Many of our largest corporations are paying effective rates that are single digits.”
Doggett’s new bill, the Stop Tax Haven Abuse Act, would also require all U.S.-registered multinational corporations to provide annual income reporting on a country-by-country basis. Proponents say doing so would quickly highlight any glaring discrepancies between a company’s reporting and its work on the ground.
Such a requirement would also make it easier for developing countries to ensure that they were receiving proper taxes from foreign corporations working within their territory.
A similar piece of legislation, introduced in February, is currently before the Senate. While versions of both proposals have been introduced previously, U.S. PIRG’s Smith says the bills are today in a far stronger position.
“This issue is definitely heating up – with Congress currently trying to figure out how to fund public priorities while bringing down the deficit, it’s just impossible to ignore offshore tax haven abuse anymore,” he notes.
“And importantly, politicians on both sides of the aisle are starting to see that it’s not in the public interest when corporations can exploit these loopholes. This costs a lot of money, and owners of small businesses end up picking up the tab in cuts to public programmes and higher deficits.”
Public support for regulatory changes appears to be quite strong. According to recent polls, around 80 percent of the U.S. public and 85 percent of small-business owners support strengthened tax regulations that would make it far harder for corporations to exploit offshore tax havens.
Trillion dollars a year
The new momentum to end tax haven loopholes here in the United States joins a similar movement internationally, including at the highest levels of the development community.
Just last week, five members of the European Union – France, Germany, Italy, Spain and the United Kingdom – agreed to the world’s first multilateral system of tax information exchange, based on similar bilateral U.S. requirements passed three years ago. (The United States itself doesn’t tax foreign-owned income in U.S. banks, and hence is one of the world’s largest tax havens.)
Over the weekend, five more countries – Belgium, the Czech Republic, the Netherlands, Poland and Romania – signed on to the pilot project, which is open to all E.U. members.
“There’s a flurry of action going on right now, both domestically and internationally, but this E.U. announcement is huge,” Clark Gascoigne, communications director for
Global Financial Integrity, a Washington watchdog group, told IPS.
“It pokes a massive hole in international bank secrecy and ensures that tax officials will have a lot of the information they need to crack down on tax haven-related evasion. They’re now promoting this as the new global standard on tax information sharing – a major development that will do much to curtail evasion, particularly once it’s expanded to developing countries and emerging economies.”
Indeed, the ramifications of this discussion for developing countries are enormous. Last month, a high-level United Nations panel negotiating the next phase of the Millennium Development Goals (MDGs), the deadline for which is 2015, produced a communiqué stating that one of their highest priorities would be tackling the abuse of offshore tax havens and illicit financial flows.
According to a recent report by Global Financial Integrity, such abuse could be resulting in losses for developing countries as high as a trillion dollars a year. Gascoigne notes this is 10 times the amount that developing countries receive in foreign aid each year.
“This has a devastating impact on global development, and it’s fantastic that this is finally being recognised,” he says.
“There is a severe lack of transparency right now in how multinational companies are structured, and this facilitates extremely high levels of illicit flows out of developing countries. Beyond setting a precedent that these abuses are not acceptable in the United States, the legislative proposals in Congress would force corporations to properly record their profits in developing countries, where they’re producing and selling their products.”