The top 50 companies in the U.S. are stashing $1.6 trillion in offshore accounts, according to a new analysis by Oxfam. That money may return to the U.S. at a steep tax discount if a repatriation holiday proposed in some tax reform proposals is implemented. Doing so would allow corporations to continue evading taxes by holding money abroad, according to the NGO.
“This is an issue of fundamental fairness,” Oxfam America Senior Adviser Robbie Silverman told Humanosphere. “There are two sets of rules, one for major corporations and another that is not available to the hardware store on the corner or the average American family.”
The largest U.S. companies, including Apple, Microsoft and Pfizer, used a network of more than 1,751 subsidiaries in tax havens to keep profits out of the country and avoid paying taxes. It is a legal practice that costs the U.S. more than $100 billion in federal tax revenue each year.
Oxfam officials said that the corporations have spent $350 million since 2009 on lobbying lawmakers in Washington, D.C., to keep the practice legal.
The proposed repatriation holiday would allow companies to bring that money back into the U.S. at a tax rate as low as 10 percent – significantly less than the current 35 percent tax rate.
“These are big structural problems and a repatriation holiday would further rig the system,” said Silverman. “One of the things we saw in this election cycle was Trump campaigning on the idea of ‘draining the swamp’ and that the system is rigged against ordinary Americans. We agree. Big companies use their influence to pay fewer taxes and small business have to make up the shortfall.”
Oxfam noted its agreement with Trump’s campaign view in the report. The group also appeals to tax reformers and citizens, arguing that this is an example of government is not acting in the everyone’s interests. It recommends the development of a tax system that does not legalize avoidance for corporations and helps reduce inequality.
Proponents of the repatriation holiday said bringing back the money back into the U.S. at the lower tax rate is better than never seeing the money at all. If implemented, the top 50 companies would keep $300 billion. Silverman said that any new taxes collected wouldn’t justify keeping the current system in place, and that the lesson for big business is to keep the money elsewhere until the next tax holiday.
The issue takes on importance at a time when the White House is seeking to both cut the federal budget and reduce tax rates on individuals and corporations. Oxfam and other humanitarian groups opposed proposed cuts to the foreign aid budget and other programs that deal with poverty alleviation.
“A fair and effective tax system is the lifeblood of an efficient and well-functioning government, allowing for investments in basic services like schools, hospitals, roads, first responders, social safety nets and other vital public services that can address poverty and ensure a thriving business climate,” he said. “The vast sums that companies have stashed in tax havens should be fighting poverty and rebuilding America’s infrastructure, not hidden in Panama, Bahamas or the Cayman Islands.”
Corporations using tax havens is a global problem. Estimates vary, but as much as $1 trillion is moved around the world to avoid paying taxes each year. Countries with high rates of poverty are affected most since revenues that could pay for expanded access to health care and education is lost. Oxfam, the ONE Campaign, Action Aid and other groups have advocated for governments to make reforms in recent years.
Some of the work is succeeding. The European Union mandated country-by-country reporting for institutions operating in its countries – including U.S. businesses. Increasing transparency can help root out corruption, advocates said. Oxfam called for corporations to publish more information about their revenues, assets and taxes. And it urged Congress to scrap current tax reform proposals and come up with a system that no longer allows corporations to hide money offshore.
“Fixing the worldwide system will improve America’s competitiveness in a way that is compatible with our trade agreements and international norms of corporate taxation,” the report concluded.