November 24, 2020

A budget [US] solution is hiding in the Cayman Islands

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Cayman:USA Erin Larkin, Las Vegas Sun

The budget fights in both Washington, D.C., and Carson City are looking predictably ugly this year, and are shaping up along familiar lines: Do we raise taxes? Do we sink deeper in debt? Which programs do we cut — and how deep?

Fueling these debates are the automatic across-the-board federal spending cuts, which are set to take effect in the next few days. These cuts intentionally make no distinction between public priorities and wasteful spending, cutting both with equal abandon. The cuts to military spending and Medicare are getting most of the attention, but the impact doesn’t stop there. Food safety programs would be forced to cancel 2,100 safety inspections, the FBI and other law enforcement agencies would lose the equivalent of 1,000 federal agents, and 1.2 million disadvantaged students would lose education grants.

Fortunately there are other solutions, one of which is hiding in plain sight. Should we really cut food safety, law enforcement, and education while the nation’s largest, most profitable corporations use loopholes to avoid paying the taxes they should?

Many American corporations and wealthy individuals use complicated accounting tricks to take advantage of loopholes in the tax code, moving their U.S. income to shell companies in tax havens like the Cayman Islands. They pay little or no taxes on those profits, leaving the rest of us to pick up the tab. Each year, the federal treasury loses an estimated $150 billion in revenue to offshore tax havens.

This tax dodging contributes to our sentrance-500tate’s budget crisis as well. According to a recent U.S. PIRG report, Nevada taxpayers lost more than $443 million to offshore tax havens last year. That’s enough money to pay salaries for 11,000 school teachers, based on the average Nevada teacher salary, and would be more than enough to cover the budget cuts to education, the environment, military readiness, law enforcement, and public health, $31 million total, that Nevada will suffer if the federal sequester takes effect.

Closing these offshore tax loopholes should be an obvious first step to lessen our budget woes at both the state and federal levels. At the federal level, closing tax loopholes would generate more than enough revenue to offset the impending budget cuts entirely.

Unfortunately, the use of tax havens has become standard practice in corporate America. At least 83 of the 100 largest publicly traded American corporations have subsidiaries in tax haven countries. That includes Bank of America, Goldman Sachs, Wells Fargo and JP Morgan Chase — banks rescued by bailouts in 2008, courtesy of American taxpayers —which use a total of 551 offshore subsidiaries to avoid taxes.

Microsoft’s creative accounting is a classic example of how these schemes work. Over a span of three years, Microsoft avoided $4.5 billion in federal income taxes by selling some of its intellectual property rights to a subsidiary in tax-friendly Puerto Rico. This allows Microsoft to pay that subsidiary 47 percent of the revenue from its American sales, moving these profits offshore — even though the profits came from products that were developed and sold in the U.S. It’s all technically legal, but it’s definitely not right.

It’s time for this free ride to end. These companies benefit from our nation’s educated workforce, infrastructure and security, yet they do everything they can to avoid paying what they should. When corporations don’t pay, they dump their tax burden on the rest of us, forcing us to make up the difference through cuts to public services, a bigger deficit or higher taxes.

Closing offshore tax loopholes should be at the top of every lawmaker’s list. With serious budget challenges before us, now is the time to put these tax loopholes to rest.

Erin Larkin is the western states field organizer for the U.S. Public Interest Research Group.

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