Every year, corporations and wealthy individuals use complicated gimmicks to shift U.S. earnings to subsidiaries in offshore tax havens – countries with minimal or no taxes – in order to reduce their federal and state income tax liability by billions of dollars. While tax haven abusers benefit from America’s markets, public infrastructure, educated workforce, security and rule of law – all supported in one way or another by tax dollars – they avoid paying their fair share for these benefits.
Small business owners are hit twice by the effects of tax dodging by large multinational corporations. Small businesses are placed at a competitive disadvantage because they rarely have subsidiaries in tax havens and the armies of tax lawyers and accountants necessary to exploit the loopholes that come with such subsidiaries. Meanwhile, nearly 73% of Fortune 500 companies operate subsidiaries in tax haven countries. Small businesses are forced to compete with multinational corporations based on the cleverness of their tax gimmicks rather than on their innovation or quality of product.
As a result, these small businesses, which pay their taxes without the loopholes, end up picking up the tab for offshore tax avoidance in the form of higher taxes, cuts to public programs, or increases to the federal debt.
The United States loses approximately $147 billion in federal and state revenue each year due to corporations using tax havens to dodge taxes. This report calculates the extent that tax responsibilities would be shifted to small businesses in each state if that business sector picked up the tab – divided equally among the small businesses.
▪ The federal government loses $128.5 billion in corporate tax revenue due to tax haven abuse. Every small business would need to pay an additional $4,481 in federal taxes to account for the revenue lost.
▪ Corporate tax haven abuse costs state governments an estimated $18.5 billion in lost tax revenue. Small businesses across the country would have to pay on average an additional $647 to make up for the lost state taxes.
▪ Because state corporate tax rates vary considerably, small businesses in some states would have to pay as much as $2,520 to make up for state tax revenue lost to tax haven abuse.