The Real Deficit Culprits: Offshoring and Corporate Tax Evasion

Source: In These Times, April 21, 2011
One of the major causes of current high, chronic levels of unemployment in the United States is offshoring by U.S. corporations. Less well known, however, is that these same multinational corporations are a significant cause of not only millions of lost jobs, but of trillions of dollars of lost tax revenue as well—thus contributing significantly to current and future budget deficits.

A recent report by the U.S. Commerce Dept., a pro-business source, indicated that big multinationals like General Electric, Caterpillar, and big tech and drug companies over the past decade reduced their American work forces by 2.9 million while increasing their jobs offshore by 2.4 million. Apart from the harm inflicted on US working families, this development has resulted in the loss of huge amounts of tax revenue to the federal government, contributing in a major way to the country’s current budget deficit and rising government debt levels.

For example, if one averages the total 2.9 million jobs lost in the U.S. over 10 years, and assumes an average pay of $43,000 a year over the decade, assuming further an average 20 percent personal income tax rate, the 2.9 job loss equates to an average annual loss in total income in the US Treasury of around $25 billion a year. That’s a total revenue loss of about $250 billion over the past decade alone.

That total does not include the loss of additional state and local tax revenue, or the additional federal revenue sharing with the states that was required the past decadeby the federal government to make up for the state-local tax revenue loss.

For the coming decade, 2010-2019, the ‘lost tax revenue tab’ for the U.S. Treasury would be significantly greater still, as even more jobs will likely be offshored and the average annual money income will be slightly higher than $43,000. The amount for the decade ahead would be easily in excess of $300 billion more.

But the total US tax revenue loss is even greater due to the direct loss of jobs from offshoring. The loss of tax revenue due to the loss of 2.9 million jobs (and an equal or greater number of lost jobs due to offshoring in the coming decade) is only part of the tax revenue loss picture attributable to U.S. multinational corporations.

For example, current federal tax laws actually give corporations’ tax breaks for moving jobs offshore. Then there’s the investment tax cuts given corporations that move offshore that partially pay for the cost of the capital equipment they purchase when they set up operations offshore. These two ‘expensing’ and ‘investment tax credit’ loopholes for companies that ‘offshore’ jobs are difficult to estimate precisely, but together likely amount to at least another $150 billion dollars over the past decade, 2000-2009, and even more going forward for 2010-1019.

So we have $250 billion in lost jobs-based tax revenue for the past decade due to offshoring plus another $150 billion or so due to expensing and investment credit loopholes associated with the same offshoring and job loss. That’s a total of $400 billion.

But an even greater revenue loss is the result of these same multinational corporations refusing to pay their required ‘foreign profits tax.’ It has been estimated by the global business periodical,The Financial Times, that as of mid-year 2010 non-financial US multinationals were sheltering $1 trillion in taxable revenue in their offshore foreign subsidiaries. They are holding the $1 trillion offshore, refusing to pay their share of taxes on it.

Adding the preceding tax revenue losses due to multinationals’ offshoring of 2.9 million jobs, manipulation of loopholes, and both financial and non-financial multinational corporations’ refusal to pay taxes on foreign earnings according to US tax law—the total revenue loss to the US government comes to more than $1 trillion.
Link: http://www.inthesetimes.com/working/entry/7224/the_real_deficit_culprits_offshoring_and_corporate_tax_evasion/