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Madison, WI – A new report by WISPIRG estimates the fiscal impact of closing one loophole in the state tax code on Wisconsin taxpayers and the services they depend on, including education, public safety, and transportation. The report, The Tax Haven Tradeoff: How Offshore Tax Haven Abuse Hurts Wisconsin Taxpayers and Businesses, found that closing the “water’s edge” loophole would save Wisconsin taxpayers $28.8 million annually.
“When companies’ exploit loopholes in the tax code, Wisconsinites foot the bill in some very real ways,” said Bruce Speight, WISPIRG Director. “Tax haven abuse means higher taxes for average Wisconsin taxpayers, or cuts to public programs. That’s the tradeoff.”
Significant income tax revenue is lost to tax haven abuse in Wisconsin. According to the Legislative Fiscal Bureau, companies doing business in Wisconsin avoid an estimated $28.8 million in state income tax liability every year by exploiting the “water’s edge” loophole. The report found that the revenue saved from closing this loophole would be enough to:
• Increase Wisconsin’s rainy day fund by 10.3%,
• Give a $10.06 tax cut for every person who filed a Wisconsin tax return in 2010,
• Hire 531 more teachers in k-12 schools statewide,
• Award a $3,000 Wisconsin Higher Education Grant to an additional 9,600 undergraduate students in Wisconsin,
• Award a $1,168 Homestead Credit to 24,657 Wisconsin taxpayers, or
• Reimburse local governments for 13,604 miles worth of road-related costs, including fixing potholes on local roads.
Companies utilize sophisticated accounting techniques to exploit the tax code through offshore tax havens. Loopholes in the tax code permit businesses to delay tax payments on profits earned abroad in subsidiary companies until the money has been returned to the United States through dividend payments, repurchasing stock, or investments. Companies use these loopholes to label profits actually earned in the United States as “foreign” profits made by the subsidiary companies located in tax haven countries with very low or no taxes.
Other states have already taken action to close the “water’s edge” tax loophole. In 2003, in a bipartisan vote of 79-20 in the state legislature, Montana closed the loophole and recouped $7.2 million from corporations in 2010 that were previously exploiting this loophole. The state of Oregon adopted a similar tax provision in 2013 with unanimous, bi-partisan support. Oregon estimates that this will save taxpayers $18 million in the 2013-15 biennium, $42 million in the 2015-17 biennium, and $49 million in the 2017-19 biennium.
In March 2014, Representative Cory Mason along with eighteen co-sponsors introduced Assembly Bill 844, the End Tax Haven Abuse Act. This bill will prevent corporations from using foreign subsidiaries in known tax haven jurisdictions to avoid taxes.
“The good news is that state leaders in Wisconsin can stand up for Wisconsin taxpayers and businesses by closing this loophole. It’s a quick fix already adopted by other states,” concluded Speight. “We applaud state leaders for beginning the work to address this problem in our tax code this past session; they should finish the job and close this loophole when they take up the next state budget.”
Wisconsin businesses without offshore subsidiaries also suffer because they must compete against multinational companies that have an artificial cost advantage due to their tax dodging. Already, over 75 business owners in Wisconsin have signed onto a statement of support urging our elected leaders to “end tax dodging and support a level playing field for business by enacting strong legislation to stop tax haven abuse.”
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WISPIRG is a statewide non-profit, non-partisan public interest advocacy organization that stands up to powerful special interests. We represent thousands of members statewide. www.wispirg.org.
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