A new report from the U.S. Public Interest Research Group (PIRG) reveals that state governments lost $39.8 billion in revenues because corporations and wealthy individuals are using offshore tax havens to avoid paying their statutory tax rates. We've seen the devastating effects that offshoring jobs have had on America's workers, and offshoring has long been talked about in terms of lost federal revenue, where $150 billion a year goes unpaid, but little focus has been given to state losses from the practice. Federal and state tax laws allow companies to claim that at least some portion of their profits were earned in other countries, particularly those whose tax rates are low or nonexistent.
According to PIRG, such offshoring is both damaging to the states and unfair:
Tax haven abusers benefit from our markets, infrastructure, educated workforce and security, but they pay next to nothing for these benefits. Ultimately, taxpayers must pick up the tab, either in the form of higher taxes, cuts to public spending priorities or increased national debt.
While the federal government is gridlocked and has little chance for changing these tax laws right now, PIRG says it is much easier for the states to attempt to recapture this lost revenue and offers up several legislative options that could make state revenue collection more fair:
1. States can “decouple” their tax system from the federal tax system.
2. States can require worldwide combined reporting for multinational corporations.
3. States should urge their federal representatives to reject a “territorial” tax system, which would further erode state revenue.
4. States can require increased disclosure of financial information about corporations’ business presence in other countries and how they price their transfers with their own foreign subsidiaries; as well as to explain why large disparities exist between the profits corporations report to shareholders and tax authorities.
5. States could withhold taxes as part of federal FATCA (Foreign Account Tax Compliant Act) withholding.