How Offshore Tax Dodging Is Busting State And Federal Budgets

State and local governments lost $39.8 billion last year because corporations and the wealthy shifted profits to offshore tax havens, an amount roughly equal to what they spent on firefighters in 2008, according to a new report from the U.S. Public Interest Research Group (PIRG). The federal government lost $150 billion in revenue to the same practices.

Corporations shifting profits to tax havens like Bermuda and the Cayman Islands has consequences for both individual taxpayers and America’s small businesses, and it also complicates efforts to reduce the size of the national deficit, a priority of both parties in Washington. The $150 billion lost to offshore tax avoidance at the federal level annually, the report notes, would be more than enough to offset the automatic spending cuts that are set to take place at the beginning of March if Congress does not offset it. Those cuts total $1.2 trillion over the next decade.

“So much of the discussion in the recent fiscal cliff negotiations centered on shared sacrifice,” Rep. Lloyd Doggett (D-TX) said on a conference call announcing the report. “I think that it is important in considering this report and its implications to reflect on that fiscal cliff agreement, because in it, corporations did not contribute a cent to resolving the fiscal cliff.”

The $150 billion lost to tax havens could cover the cost of Pell Grants for 10 million students for the next four years. It is also enough to double federal spending on Head Start and other education programs or pay for every high-speed rail project proposed by state governments in 2009. At the state level, $40 billion lost is enough to boost the number of firefighters back to 2008 levels or to cover the cost of education for 3.7 million children.

“Every dollar hidden abroad means less money for infrastructure, less money for education, less money for the investments that we need to create a strong local business climate for independent small businesses back home,” the Main Street Alliance’s Sam Blair said.

Meanwhile, offshore tax havens make America’s small businesses less competitive with large corporations. A previous PIRG report found that it would cost each small business $2,116 to make up revenue lost to corporate use of offshore tax havens.

Eight states — California, New York, New Jersey, Illinois, Minnesota, Massachusetts, and North Carolina — lost at least $1 billion to offshore tax havens last year. California, a state that has enacted massive budget cuts in recent years, lost $7.1 billion in 2011, while New York and New Jersey each lost more than $4 billion.