Last month, in Tax Notes magazine, Martin Sullivan laid out the dramatic drop in the effective tax rate of Transocean, which owns the failed Deepwater Horizon rig in the Gulf of Mexico, as it incorporated itself in tax havens like the Cayman Islands and Switzerland. Transocean’s tax avoidance helped it lower its tax rate by nearly fifteen points, despite the fact that it kept most of its operations in the United States.
“These tax-motivated restructurings occur with little or no real change in day-to-day business operations. Top executives, key personnel, and all significant business operations in the United States before the transaction remain in the United States,” Sullivan noted. But Transocean is far from the only company taking advantage of America’s loophole ridden tax code to park profits offshore and avoid taxes.
According to a new report from Business and Investors Against Tax Haven Abuse, an organization backed by Sen. Carl Levin (D-MI) that is seeking to end tax avoidance and evasion, multinational corporations and banks are ducking $37 billion annually in taxes:
Fifty years ago, corporate income taxes accounted for 23.2% of federal government receipts, and individual income tax payments were less than twice those of large corporations’ tax payments. Today, the U.S. Office of Management and Budget estimates corporate tax receipts will account for just 7.2% of federal revenues in 2010, with large corporations contributing less than one-sixth as much as small business and individual taxpayers to the Federal Treasury (small businesses most often pay taxes according to their owner’s individual tax rates).
Eighty-three of the 100 largest publicly traded U.S. corporations and 63 of the 100 largest federal contractors have at least one subsidiary in a tax haven, the report says. Companies as different as Goldman Sachs, Safeway, and Liberty Mutual all share a common penchant for tax dodging. Such widespread avoidance simply shifts the tax burden onto law abiding individuals and businesses, who ultimately have to pay more to make up for the lost revenue.
The report recommends, among other things, the implementation of Rep. Lloyd Doggett’s (D-TX) International Tax Competitive Act of 2010, which “would treat a company as a U.S. company for tax purposes if its management and officers with day-to- day control are located in the U.S., even if its paper incorporation is offshore.” I spoke to Doggett back in April, when he told me, “I always find it impossible to explain why a pharmacist in Bastrop, Texas, or a small retail store in San Marcos is having to pay higher rates on the income that their hard-working small business owners are earning than some multinational that can duck and dodge taxes in Bermuda or the Cayman Islands.”
Of course, doing anything to crack down on tax evasion means incurring the wrath of the Chamber of Commerce and Big Business community, which continually fearmonger about the effect of taking such steps to ensure that companies pay the tax rate that is on the books.