Burning Our Bridges

Burning Bridges report coverTo generate funds to shore up our nation’s crumbling infrastructure, the U.S. Congress is considering giving corporations large tax cuts on their offshore profits. Under current law, corporations can defer U.S. tax payments on overseas earnings until they bring the profits to the United States. The proposed “tax holidays” would generate a relatively small, one-time revenue bump while allowing large corporations to avoid much larger amounts of tax owed over the longer term.

The last time we tried this, in 2004, it failed miserably. Corporations that participated shaved nearly $100 billion off their long-term IRS bills. And instead of boosting investment, they used the windfalls to buy back their stock and boost dividends while laying off more workers than they hired. Once the holiday was over, they began rebuilding their overseas profit stashes.

This report identifies the 26 U.S. corporations with the largest stockpiles of untaxed overseas profits and analyzes how much these firms could help meet U.S. infrastructure needs if they actually paid the taxes they owe — but can legally put off paying — on their offshore profits.

The American Society of Civil Engineers estimates that $3.6 trillion in infrastructure investment is needed by 2020 to bring our aging infrastructure into the 21st century and keep our economy competitive.

  • Just 26 firms account for more than half of the $2.1 trillion in untaxed profits U.S. corporations are currently holding offshore. Each of these firms has accumulated more than $20 billion in overseas earnings. Together, they operate 1,086 subsidiaries in tax haven nations.
  • These 26 firms’ offshore profits have exploded more than five-fold since the last tax holiday on overseas earnings. Microsoft, Google, Apple, and Qualcomm each grew their offshore stashes by more than twenty-fold between 2005 and 2014.
  • If these 26 mega-stockpilers were to pay what they owe on their overseas profits, the federal government could gain a one-time revenue boost of an estimated $364 billion. That would be more than enough to cover the cost of repairing all of the country’s wastewater and stormwater systems, with enough left over to repair or replace all of the country’s dangerous and deficient dams and restore all the nation’s local, state, and national parks.
  • Apple is the largest offshore profit stockpiler. If the highly profitable tech firm were to pay what it owes on those earnings, it would be enough to cover 17 percent of the cost of needed repairs on all public school buildings.
  • The second-largest offshore stockpiler is General Electric. If GE paid the taxes it owes on the $119 billion it holds offshore, that estimated revenue would be more than enough to pay for all of the unmet maintenance needs in local, state, and national parks.
  • Seven pharmaceutical firms are among the 26 mega-stockpilers. This sector has become adept at avoiding U.S. taxes by shifting ownership of patents and trademarks to subsidiaries in tax havens. If these seven drug companies were to pay the taxes they owe, it would generate an estimated $82 billion, enough to replace all of the deficient bridges in the United States.
  • If just two major oil companies — ExxonMobil and Chevron — were to pay the taxes they owe on their offshore profits, it could cover nearly a quarter of the cost of repairing all of the country’s levees. This is infrastructure critical for responding to the more volatile and extreme weather we are now experiencing.
  • Closing the offshore tax dodging loophole for all corporations could raise at least $590 billion over the next decade, and $90 billion more every year thereafter. This would represent a significant down payment on the nation’s overall infrastructure investment needs and could create an additional 1.8 million jobs.

READ THE FULL REPORT [PDF].

Sarah Anderson directs the Global Economy Project at the Institute for Policy Studies and has co-authored 21 IPS annual reports on executive compensation. She serves on the Investment Subcommittee of the U.S. State Department’s Advisory Committee on International Economic Policy.

Scott Klinger is Director of Revenue and Spending Policies at the Center for Effective Government and an IPS associate fellow. He crafted the first shareholder proposals on executive pay while working as a social investment portfolio manager. Scott is a CFA charterholder.