A study by the U.S. Public Interest Research Group Education Fund indicates that small businesses in the United States on average pay an extra $5,128 in taxes to make up for revenue lost due to the use of offshore tax havens by multinational corporations.
Results of the study show that the federal government loses $128.5 billion in corporate tax revenue due to tax haven abuse. Every small business in the U.S. would need to pay an additional $4,481 in federal taxes to cover this lost revenue.
Additionally, offshore tax havens cost state governments an estimated $18.5 billion in lost tax revenue, according to the report, with U.S. small businesses needing to pay an average of an extra $647 to make up for the lost state tax revenue.
“The amount of cash corporations book to offshore tax havens is only growing, and it’s not because these businesses are conducting prolific amounts of business in the Cayman Islands,” explained U.S. PIRG tax and budget associate Alexandria Robins. “Our tax code is balanced in favor of big multinational corporations, and that means here at home we’re losing out on lower tax rates, more funding for public programs, or cuts to our national debt.”
The report referred to the use of foreign tax havens by some of the largest multinational corporations. For one, Microsoft is said to have five tax haven subsidiaries, while keeping $124 billion offshore, on which it would otherwise pay $39.3 billion in U.S. taxes. The report says that General Electric maintained 20 tax haven subsidiaries last year, and kept $104 billion offshore. Another example is drug maker Pfizer, which operates 181 subsidiaries in tax havens, holding $193.6 billion in profits abroad for tax purposes.
It’s a complex issue and one that many believe requires attention. Clark Gascoigne, deputy director of the advocacy group FACT Coalition, noted that the report comes at a time when the new administration and Congress are set to consider significant tax reforms.
“For too long, lawmakers in Washington have used the tax code to pick winners and losers,” Gascoigne said in a statement. “Sadly, the ‘winners’ have been multinational companies that shift jobs and profits overseas, while the ‘losers’ are small businesses and middle-class Americans who are stuck with the bill. We are about to have a very public debate on corporate taxes. It’s important to remember that fixing the problems should include changes that level the playing field between domestic businesses and multinational companies. Real change must not, as we have seen in some proposals, double down on a two-tiered system that favors multinational over wholly domestic companies.”
Many small business owners believe that the current situation is unfair, and that major tax reforms are necessary in order to fix these problems.
“Corporate tax dodging is a triple whammy for small business owners like me,” said ReShonda Young, owner of Popcorn Heaven in Waterloo, Iowa, and a member of the small business advocacy group Main Street Alliance. “First of all, along with all other taxpaying citizens, we have to fill the gaps when corporations avoid paying their fair share. That means paying more ourselves, suffering inferior services, watching the national debt climb – or some unfortunate combination of those options.”