If Illinois small business owners were to collectively offset state and federal revenues lost annually due to corporations using offshore tax havens, they would each have to pay $4,570 in additional taxes a year.
That what-if scenario is laid out in a recent report from the Illinois Public Interest Research Group (PIRG) examining the issue of "corporate tax haven abuse" and what it means for small businesses.
Through the use of accounting "gimmicks" to shift profits offshore, corporations avoid paying $110 billion annually in federal and state income taxes combined, according to Illinois PIRG's "Picking up the Tab" report. Specifically, about $90 billion in federal and $20 billion in state corporate income tax revenue is lost each year to tax havens, the research reveals.
As a result, "small business owners, along with ordinary Americans, pick up the tab either by paying higher taxes, suffering from cuts to public programs or facing a larger national debt," the report reads. "And without access to offshore subsidiaries, small businesses and medium-sized domestic businesses are put at an unfair competitive disadvantage and forced to compete on an uneven playing field."
Bank of America, Citigroup, Caterpillar, Google, General Electric, Microsoft and Pfizer are examples of big, well-known corporations mentioned in the report using offshore tax havens.
"When large companies shirk their taxes, small businesses get stuck with part of the bill and are put at a competitive disadvantage," Illinois PIRG Director Abe Scarr said in a statement. "Businesses should compete on innovation and the quality of their products, not on the cleverness of their tax attorneys."
U.S. Sen. Dick Durbin (D-IL) weighed in on the report's findings, saying in a statement that the research "demonstrates the degree to which our tax code is broken."
"While big corporations spend millions on tax attorneys to find loopholes that allow them to avoid paying their fair share of taxes, small businesses and middle-income families are left picking up the tab," Durbin said.
Congress could take at least one step to address the problem of "corporate tax haven abuse" by not renewing two recently-expired tax breaks considered to be "offshore loopholes" -- the "active financing exception" and the "controlled foreign corporation look-through rule," Illinois PIRG leaders say. The federal government could pull in $80 billion over a decade if the two tax breaks in question are kept out of the U.S. tax code.
The report lists a number of other measures the federal government could adopt to close offshore tax loopholes, including passage of the long-proposed Stop Tax Haven Abuse Act. U.S. Sen. Sheldon Whitehouse (D-RI) and U.S. Rep. Lloyd Doggett (D-TX,35) re-introduced the measure this year in their respective chambers.
Under U.S. tax law, a so-called corporate tax inversion allows American firms to reincorporate in a foreign country in certain circumstances. The proposed legislation being pushed by Durbin and some other Democratic lawmakers would make it much harder for corporations to use inversions to shrink U.S. tax bills.
"Congress needs to pass common sense legislation, like the Stop Corporate Inversions Act that would prevent corporations from moving their tax address overseas, but only on paper, to avoid paying U.S. taxes, and work towards reform that closes the many loopholes contributing to our growing income inequality," Durbin stressed.