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Wednesday, February 28, 2024
Feb. 28, 2024

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In Our View: Tax Shelters Cost Taxpayers

‘Panama Papers’ reveal that when rich hide assets, regular citizens pay the price

The Columbian

To many of us, the tax-dodging practices revealed in the “Panama Papers” might seem a little confusing and a little convoluted. So we shall begin by placing it in the most direct of terms: The practice costs American taxpayers $124 billion a year.

That is the assessment of Gabriel Zucman, an economist at the University of California, who estimates that the federal government would receive an additional $36 billion from individual taxpayers and an additional $88 billion from multinational corporations if those entities did not move income and assets to foreign countries.

As The Washington Post reported while putting those numbers into perspective: “The money that Americans avoid paying in taxes by shifting their wealth abroad would be more than enough to feed tens of millions of people for a year.” Or “would be enough to pay every uniformed member of the U.S. Armed Forces.” Or “with just $90 billion a year, Congress could set up a national network of high-quality early education programs open to all families.” Instead, when the wealthy move assets to foreign countries in order to avoid paying U.S. taxes, they increase the burden upon average taxpayers.

All of this has come under scrutiny with the leak of 11.5 million confidential documents from Mossack Fonseco, a law firm in Panama that for years has assisted wealthy clients in setting up anonymous companies in tax-haven countries. At least five current heads of state have been implicated — along with dozens of their associates — and the prime minister of Iceland has been forced to resign.

Few Americans have been named in the “Panama Papers,” and experts say there is good reason for that — Americans don’t need to set up offshore accounts to stash their money because lax laws in several states allow them to hide in plain sight. For example, The Washington Post reported that a one-story building in downtown Wilmington, Del., has served as the registered address for more than 250,000 businesses in recent years, with corporations setting up shell companies that have no assets or operations. It doesn’t matter whether those corporations do business in Delaware; they simply are trying to avoid paying taxes in places where they actually operate.

In Washington, Seattle-area companies Microsoft, Amazon, and Expedia have been ranked among the U.S. corporations stockpiling the most money overseas. Microsoft, according to Citizens for Tax Justice, has stashed profits of $108 billion in foreign countries, ranking behind only Apple and drug giant Pfizer. As columnist Danny Westneat wrote for The Seattle Times: “Bottom line: When you buy a copy of Microsoft Office … the money isn’t booked at Redmond. Much of it goes to Reno, Nev., (avoiding some Washington state taxes) then to Puerto Rico and Ireland before eventually settling in Bermuda.”

These practices might be legal, but they are detrimental to the American taxpayer and they call for policy changes. Legislation has been introduced in Congress that would require shell companies registered in the U.S. to report their real owner rather than a figurehead whose name appears on the incorporating documents, but look-the-other-way states such as Delaware, Nevada, and Wyoming are resisting those efforts.

The argument, some say, is that companies or individuals should be allowed to keep the money they earn. But the fact is that a system allowing multinational corporations to skip out on U.S. taxes only transfers more of the onus to small businesses and individual citizens.