Crack Down on Offshore Tax Havens

We've all heard about big, multinational corporations using offshore tax havens to avoid paying their fair share in taxes.  As of 2008, at least 83 of the top 100 publicly traded corporations in this country used tax havens, according to the Government Accountability Office (GAO).  The GAO has found that one address in the Cayman Islands – a five-story building called Ugland House – is the official address for 18,857 corporate entities, 40-50 percent of which have a U.S. billing address and no physical presence in the Cayman Islands. 

Among the tax loopholes exploited by corporations is the practice of investing tax-deferred foreign earnings in U.S. assets without triggering taxation. The U.S. Senate Permanent Subcommittee on Investigations found that just 27 U.S. multinational corporations held a total of about $538 billion in tax-deferred foreign earnings at the end of 2010. Of those foreign earnings, nearly half – almost $250 billion – was maintained in U.S. accounts or invested in U.S. Treasuries, stocks, bonds, or mutual funds with no tax implications.

Though these practices can seem arcane, the results are all too real: higher deficits, cuts to vital services and infrastructure investments, or higher taxes for the rest of us.  When corporations use accounting tricks to avoid taxes, our families, seniors, small businesses and communities must make up the difference.  For our local businesses – our true job creators – this tax abuse hits twice: first, in the form of cuts to transportation and other infrastructure investments that help them grow; and secondly because multinationals gain an artificial advantage over responsible small business owners who pay their fair share.

If our small businesses are to shoulder the burden of the lost revenue to tax havens, we are talking about an extra $4,690 per year per Massachusetts business with fewer than 100 employee, according to an analysis by the Massachusetts Public Interest Research Group (MASSPIRG).

Last week as the state senate unanimously voted to repeal the software services tax, I offered a pair of amendments to promote fairness to our tax code by cracking down on this offshore tax haven abuse.  The goal was to amend the Massachusetts combined reporting statute for corporations that are engaged in business in a known offshore tax haven. 

According to MASSPIRG, Massachusetts loses out on an estimated $1.7 billion annually, ranking us 7th among states overall. That $1.7 billion would pay the salary of nearly 24,000 additional teachers in the Commonwealth.  In Montana, which has had this provision in place since 2003, the state is recouping on the order of $6-8 million each year, or about 16% of the estimated revenue it loses as a result of offshore tax havens.  If Massachusetts was to recoup that same proportion of estimated lost revenue, this change would recapture about $256 million annually.

Legislation has been introduced at the federal level, including the Stop Tax Haven Abuse Act.  But in the meantime, states have begun to act, and we should do the same.  Even recapturing a fraction of this revenue, as other states have done, would go a long way to addressing critical needs.  

By reining in offshore tax dodging, we have an opportunity to make the tax code more fair for our taxpayers and small businesses, while raising needed revenue to pay for critical services.

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