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States with budget shortfalls are struggling to account for the revenue gaps. One way to boost their economic health would be for states and the federal government to close corporate tax loopholes, writes an official for a nonprofit consumer group. A certified public accountant suggests changes in the U.S. tax code would raise revenue but might also cause substantial job losses. A third writer talks about stopping tax refund fraud.
Close tax loopholes used by companies
By Laura Murray
The budget fights in Washington, D.C., and Atlanta are looking predictably ugly this year, and shape up along familiar lines: Do we raise taxes? Do we sink deeper in debt? Which programs do we cut? How deep?
Fueling these debates are the automatic across-the-board federal spending cuts taking place around the country. These cuts make no distinction between public priorities and wasteful spending, cutting both with equal abandon. Cuts to military spending and Medicare are getting most of the attention, but the impact doesn’t stop there. Food safety programs would be forced to cancel 2,100 safety inspections. The FBI and other law enforcement agencies would lose the equivalent of 1,000 federal agents, and 1.2 million disadvantaged students would lose education grants.
Should we really cut food safety, law enforcement and education while the nation’s largest, most profitable corporations use loopholes to avoid paying taxes they should?
Many American corporations and wealthy individuals use accounting tricks to take advantage of loopholes in the tax code, such as moving their U.S. income to shell companies in tax havens like the Cayman Islands. They pay little or no taxes on those profits. Each year, the federal treasury loses an estimated $150 billion in revenue to offshore tax havens.
This tax dodging contributes to our state’s budget crisis. According to a recent report by the Georgia Public Interest Research Group, Georgia taxpayers lost more than $918 million to offshore tax havens last year. That’s enough money to pay salaries for an additional 17,381 teachers, or to chop about 18 percent off the state sales tax.
Closing offshore tax loopholes should be an obvious first step to lessen our state and federal budget woes. At the federal level, closing tax loopholes would generate more than enough revenue to offset impending budget cuts entirely.
The use of tax havens has become standard practice in corporate America. At least 83 of the 100 largest publicly traded American corporations have subsidiaries in tax havens.
Over a span of three years, for example, Microsoft avoided $4.5 billion in federal income taxes by selling some of its intellectual property rights to a subsidiary in tax-friendly Puerto Rico. This allows Microsoft to pay that subsidiary 47 percent of the revenue from its American sales, effectively moving these profits offshore — even though Puerto Rico is U.S. territory, and the profits came from products developed and sold in the U.S. It’s technically legal, but definitely not right.
It’s time for this free ride to end. These companies benefit from our nation’s educated workforce, infrastructure, and security, yet they do everything they can to avoid paying what they should. When corporations don’t pay, they dump their tax burden on us to make up the difference through cuts to public services, a bigger deficit or higher taxes.
Closing offshore tax loopholes should be at the top of every lawmaker’s list. With serious budget challenges before us, now is the time to put tax loopholes to rest.
Laura Murray is a program associate for the Georgia Public Interest Research Group.
Eliminate tax havens, put U.S. jobs at risk
By Michael Thompson
A future newspaper headline reads, “Multinational Corporations Continue to Move to Other Countries in Wake of New Tax Codes.” Think that is a possibility? Absolutely! Given our current tax structure, and despite a 2004 federal law enacted to curb the practice, several U.S. corporations have already moved to other nations.
The United States has the highest corporate tax rate in the world, 39.6 percent. Do corporations pay such rates? Absolutely not! It is partially due to tax havens mentioned in a recent Public Interest Research Group (PIRG) report. Corporations devise complex schemes to avoid having to pay taxes on income generated offshore. Most tax havens are devised to avoid paying taxes on income generated overseas, not on income generated in the U.S.
The problem with taxing overseas income is that other financially stable and economically strong countries do not follow the same tax systems. They compete for corporations to provide economic growth. These countries have adopted a tax exemption for foreign-sourced income and create incentives to do business in their countries.
The PIRG report says governments should eliminate tax haven advantages and force corporations to pay taxes on foreign income. Laws that eliminate corporate tax advantages will surely create more tax. That, however, will also risk the loss of tens of thousands of jobs by corporations relocating.
A good part of a tax CPA’s career is spent with individuals, small businesses and corporations finding ways to mitigate tax liabilities. For a multi-national corporation to seek tax havens is no different than an individual claiming a child-care credit or investing in tax-free municipal bonds. Fault should be placed on the tax system itself. It is built around a belief that the U.S. is the only economy capable of housing major corporations.
Lack of tax revenue is due to an overall tax structure built around an archaic tax system. It attempts to beat tax out of multinational corporations rather than lure them to stay and reinvest. Implementing policies to encourage U.S. economic growth would create a thriving, prosperous and healthy economy. Laws would allow additional tax to be collected due to investment and domestic job creation. Tax havens should be eliminated, but only because the taxing of foreign income should be eliminated, too. Corporations could then reinvest profits from foreign source income back into the U.S., tax-free. Based on the PIRG report, this would allow nearly one trillion dollars of additional profits from multinational corporations to come into the U.S. each year that is currently restricted. This would result in additional taxes that are greater than the amounts projected to be lost through the same tax havens that are criticized.
So, what is the solution?
• Move to a territorial system whereby taxes are generated where income is earned. Then tax havens are not needed, and profits from foreign income can freely enter the U.S. and be reinvested here.
• Rather than tackling tax havens, Georgia should focus on collecting online sales taxes through the Streamlined Sales and Use Tax Agreement.
• It is important our state continues to live within its means through a balanced budget.
Michael Thompson is managing director of Thompson & Associates CPAs.
Ready to stop tax refund fraud
By Doug MacGinnitie
It’s tax season.
Some of you are ready to complete and submit your returns, while others will wait until the last minute. In either case, you may have some concerns about filing your return due to news stories about identity theft-related tax refund fraud. That’s what I want to talk about: what it is, and why Georgia is ready for it.
This fraud occurs when someone steals your identity and uses your personal information (name, date of birth, Social Security number, etc.) to file a tax return. Fraudsters then have the refund check mailed to them or deposited electronically into a bank account. Fraudsters may acquire multiple identities and then file for refunds.
Make no mistake about it: This is a pervasive nationwide problem, and it is possible that fraudsters could attempt to use your identity to file for your state tax refund. We at the Georgia Department of Revenue are ready for them.
Our agency’s mission is simple: to administer the tax laws of the state of Georgia fairly and efficiently to promote public confidence and compliance and provide excellent customer service. You live up to your responsibility by filing your return. It’s our job to quickly and efficiently process it. We take that responsibility seriously and work every day to be worthy of the public’s trust.
Several years ago, we saw that, as more people began filing online, it became easier for individuals to file fake returns and hide behind the Internet, so we further developed our anti-fraud program. We have worked to evaluate and adjust our processes, policies and procedures. Last year, we stopped nearly $100 million of Georgians’ tax dollars from going to criminals.
This wasn’t luck. We have increasingly instituted stricter processes and internal controls. Last year, we began using data and analytics technology — and we’re using it again this year — to detect stolen identities, map fraud rings and identify criminal relationships. When a return is flagged as potentially fraudulent, we request more information from the taxpayer to authenticate the individual’s identity. If the taxpayer fails to answer the questions, he or she can appeal the matter further. This means that delays for legitimate taxpayers with flagged returns are minimal, usually just two to three days.
Our anti-fraud program is strong. Our employees are working hard to ensure that we continue to meet our mission to Georgia’s taxpayers. That’s my message to taxpayers: We’ll be working throughout this tax season to make sure you get your refund in a timely manner. But, I also have a message for the would-be tax refund criminal: Don’t try it here. If you do, we’ll catch you, and we will prosecute you.
Doug MacGinnitie is commissioner of the Georgia Department of Revenue.
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