During the recent 2016 presidential election, the issue of corporations earning and keeping money offshore came up often. Both candidates voiced their opinion that the billions of dollars held by corporations outside of the United States is done primarily to avoid taxes.
This money is held in banks in countries that have more favorable taxation policies on corporations than the United States. To make this no or low tax situation work, large companies often create a subsidiary in the country where they keep their cash reserves. This effectively reduces the corporation’s federal and state income tax liability by billions, if not trillions, of dollars.
Still, these corporations continue to benefit from programs supported by our tax dollars – without having to pay their fair share for those benefits.
No one knows for sure how much money this entails, but, estimates range from $3 trillion to $30 trillion – money that would certainly be welcome as a cash injection in our local economy. But so far, the Congress has been unable to figure out legislation that would encourage corporations to keep their profits in the U.S.
Two Penalties Incurred by Smaller Companies Stemming from Off Shore Stashing of Cash
Small and medium-sized businesses within the United States are hit twice by the effects of offshore cash stashing by multinational companies:
1. Small businesses have a competitive disadvantage because few, if any, enjoy the benefits of having a corporate subsidiary in an off-shore tax haven. Nor do they have the platoon of lawyers or accountants required to exploit the tax loopholes associated with these subsidiaries.
2. Because most small businesses cannot afford an offshore subsidiary, they are forced to pick up the slack created by offshore cash stashing by multinational companies. Experts at the United States Public Interest Research Group (PIRG) estimate that smaller businesses pay on average about $5,128 in additional taxes to make up for the revenue lost due to multinational corporations’ use of offshore tax havens.
Businesses in industrial cities such as Ypsilanti, Michigan, could sorely use that extra $5,128, as well as the infrastructure improvements that have been postponed or even abandoned due to a lack of funding. Estimates are that more than $18.5 billion is lost in revenue to the states each year while the federal government loses about $128.5 billion annually due to tax haven abuse.
What is your opinion on offshore tax havens and loopholes in the tax code that seem to benefit large multinational corporations? Should the loopholes be closed, and large corporations held responsible for paying what they owe? Or is this just the price of doing business in today’s economy? Let us know what you think below.