When the Republican chair of the powerful House Ways and Means Committee called a June 13 hearing on tax havens, he expressed concerns that echoed those of many progressives.
Among the general public, opposition to this form of tax avoidance cuts across the political spectrum. Small business owners (who don’t tend to have bank accounts in the Cayman Islands) are particularly upset about the practice, which costs the U.S. Treasury an estimated $100 billion a year.
But could tax havens become a “purple” issue on Capitol Hill?
In his opening statement at the hearing, Committee Chair Rep. Dave Camp (R-MI) said: “There is widespread agreement amongst academics, economists, and lawmakers that these practices are both unfair to taxpayers who aren’t able to engage in the strategies and harmful to the U.S. economy.”
Testimony at the hearing suggested abuse of tax havens harmed not only the U.S. economy but those of our major trading partners as well. University of Southern California Law School Professor Edward Kleinbard reported that 37 percent of the income of the foreign subsidiaries of U.S. corporations was taxed at rates less than 5 percent and spoke of companies “siphoning off profits” that are taxed neither in the home country nor the host country.
Pascal Saint-Amans, who directs the tax policy department of the Organisation for Economic Co-operation and Development (OECD), observed that corporations are finding their way around bi-lateral global tax treaties by routing that trade through a third nation that is not party to the treaty. “In order for changes to the rules and international standards to be effective, greater transparency will be needed,” Saint-Amans told the Committee. British Prime Minister David Cameron is expected to call upon leaders of the G8 to address ways to curtail tax haven abuse and improve tax transparency at their meetings in Northern Ireland next week.
Meanwhile U.S. multinational corporations continue to make lobbying for corporate tax reform a high priority. Fix the Debt, a corporate pro-austerity lobby group, is calling on Congress to adopt “pro-growth tax reform” including a territorial tax system. This reform would increase incentives to exploit tax havens by permanently exempting U.S. corporations’ foreign earnings from U.S. federal income taxes.
Fix the Debt members, who collectively have shifted more than half a trillion dollars offshore, stand to gain as much as $173 billion in tax windfalls if a territorial system is adopted, according to Corporate Pirates of the Caribbean, a just-released report by the Institute for Policy Studies.
Professor Kleinbard worried that a system of “unprotected territoriality” like that favored by Fix the Debt and other corporations “heavily subsidizes foreign investment, at the expense of our own domestic economy.” Kleinbard is not alone in his concerns: a poll sponsored by the American Sustainable Business Council and Main Street Alliance found that 85 percent of America’s small business owners opposed a territorial tax system, including 67 percent of small business owners who self-identified as Republicans.
Ending the gaming of the tax code and restoring confidence in the basic fairness of the tax system is not a Democratic nor a Republican issue. It is not even just an American issue. It is something we all can agree on, and ought to be a first step toward a healthier society, a strong economy, and a business climate which allows all companies – large and small – to prosper.