Tax Dodging Costs RI $229 Million Annually
Wednesday, February 06, 2013
According to the Rhode Island Public Interest Research Group (RIPIRG), Offshore Tax Havens—or countries/jurisdictions with minimal or no taxes—are taking approximately $164 million dollars in corporate income tax revenue and $65 million dollars in individual tax revenue out of Rhode Island on a yearly basis.
The losses are part of a larger problem nationwide that the RIPIRG says includes 83 of the 100 largest publically-traded corporations in the country and 290 of the top Fortune 500 companies overall.
“Tax dodging is not a victimless offense,” said Ryan Pierannunzi, a Tax and Budget Associate for RIPIRG. “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. Rhode Island should be using that money to benefit the public.”
A Nationwide Issue
Corporate tax avoidance was a topic of much discussion during last fall’s Presidential Campaign but the true and specific impact it has on the country has often gone unreported.
According to RIPIRG, state taxpayers across the country lost nearly $40 billion last year from abuse related to offshore tax loopholes.
“To put that amount in context, $40 billion roughly equals the total amount spent by all state and local governments on firefighters in 2008,” the report said. “It’s also enough money to cover the educational costs for 3.7 million children for one full year.”
To make matters worse, that $40 billion is on top of the estimated $150 billion lost at the federal level nationwide.
“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.”
Impact on the Ocean State
Rhode Island fares better than many other states in terms of the actual dollar amount of tax revenue lost to offshore accounts but when compared to its regional neighbors, the impact on the Ocean State is immense.
Only Connecticut and Massachusetts, two much-larger states with budgets four and five times the size of Rhode Island, respectively, suffer bigger losses to tax avoidance among New England states.
Massachusetts is actually the seventh hardest-hit state in the country overall in this regard, losing an estimated $1.6 billion per year to offshore accounts.
In Connecticut, which has a $40.5 billion annual budget, approximately $904,000,000 in tax revenue never reaches the state’s accounts.
By comparison, the losses Rhode Island faces each year represent nearly three percent of its annual $8.1 billion budget and, the RIPIRG says, the impact of the state actually collecting that money would make a huge difference.
“The $229 million lost in Rhode Island would have been enough to pay the salaries of over 3,700 teachers, based on the average teacher’s salary in Rhode Island ($60,923),” RIPIRG said. “The $229 million also would have been more than enough to eliminate the state’s projected $69 million budget deficit or cover Rhode Island College’s in-state tuition for over 30,000 students ($7,598).”
Help WAS on the way
Two years ago, Representative David Cicilline introduced the Offshoring Prevention Act (H.R. 2280), which would have ended tax breaks that encourage companies to ship jobs overseas.
"With our country facing so many challenges at home and abroad, Congressman Cicilline feels strongly that corporations and wealthy Americans should be asked to pay their fair share,” said Richard Luchette, a spokesman for Cicilline. “Loopholes in our tax code, including those that create offshore tax havens, prevent this from happening."
On the other side of Congress, Rhode Island’s Senator Sheldon Whitehouse introduced a similar bill to Cicilline’s, S. 45, in 2011 but it, too, died before making any traction.
Whitehouse was also a co-sponsor of an amendment by Senator Carl Levin last year that would have allowed “the Treasury Department to take a range of measures against foreign governments and financial institutions that significantly impede U.S. tax enforcement.”
“It’s time to put an end to offshore tax abuses that allow tax cheats to profit at the expense of honest taxpayers,” Whitehouse said at the time. “I’m proud to support Senator Levin’s amendment, which will give the U.S. Treasury greater powers to crack down on offshore tax abusers and the banks that aid them.”
Luchette says Cicilline, who has since co-sponsored legislation from Representative Llyod Doggett called the “Stop Tax Haven Abuse Act”, plans to continue pushing for the Offshoring Prevention Act to pass through Congress.
"This is a commonsense proposal that would help to keep jobs here in the United States,” he said. “And Congressman Cicilline intends to reintroduce this bill in the 113th Congress."
A Set of Solutions
Citing a gridlocked Congress, the RIPIRG report urges states to take the matter of offshore tax loopholes into their own hands to minimize the losses they suffer annually.
The RIPIRG offers five solutions they say would make an immediate impact and would close loopholes and increase the ability for states to “detect and penalize tax avoidance.”
First, they urge states to “decouple” their tax system from the federal tax system, which would break the connection between the two levels of government and let states monitor their own structures so that individuals and corporations skirting federal law wouldn’t also get a free pass at the state level.
In addition, RIPIRG says that states should require worldwide combined reporting for multinational corporations, which would add up all the profits earned around the world by a company and tax a share of those profits according to the company’s “level of activity in each country”. This change would, in theory, prevent companies from shifting profits to tax-friendly nations like Bermuda or Ireland.
The report also advocates for states to reject a federal “territorial” tax system and to require companies to disclose more of their financial information, specifically information related to said corporations’ business presence in other countries.
“These measures would provide more information for state authorities to search for red flags, decide when to audit and crack down on abuse.”
Finally, RIPIRG says states should withhold state taxes as part of the federal Foreign Account Tax Compliance Act.
The move would work just like it does at the federal level, with states collecting income taxes on companies that transfer funds to “foreign financial institutions that do not comply with U.S. disclosure and reporting requirements.”
“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,” Pierannunzi said.
Cicilline praised the organization’s attempts to curb the problem.
"As we work to get our country back on the right track, it is critical that we get corporations and wealthy individuals to pay their fair share in taxes," he said. "I applaud RIPIRG's effort to highlight the use of offshore tax havens, and I look forward to working with them to close these loopholes."
- $400 Million in New Taxes May Come to RI
- NEW: Conservative Think Tank Rips Chafee on Taxes
- Chafee Says No New Taxes in FY2014 Budget
- Chafee’s Budget: $76 Million in New Taxes
- Congressional Delegation Jumps Behind Plan to Raise Taxes on the Rich
- Half of Rhode Islanders Don’t Owe Income Taxes
- INVESTIGATION: Brown Avoids $4M in Property Taxes
- INVESTIGATION: Pawtucket Goes After Lincoln Official for Back Taxes
- $240 Million in New Local Taxes Since 2009
- NEW: Conservative Think Tank Predicts Chafee Taxes will Cost 1,400 Jobs
Enjoy this post? Share it with others.
Commenting is not available in this channel entry.