Each year, states lose approximately $40 billion in tax revenues from corporations and wealthy individuals who shelter money in foreign tax havens. Multinational corporations account for more than $26 billion of the lost tax revenue, and wealthy individuals account for the rest. Overall, the largest 500 U.S. companies would owe an estimated $620 billion in U.S. taxes were it not for the more than $2.1 trillion in offshore cash that most of the firms hold in foreign tax havens. Today, a campaign official for Democratic presidential candidate and former Secretary of State Hillary Clinton said that she (Clinton) plans to offer a proposal, which will “deter U.S. companies from shifting profits overseas, including an ‘exit tax’ to penalize companies that perform so-called tax inversions.”
A tax inversion occurs when a company merges with another and moves its headquarters to the others country to avoid paying U.S. taxes as is the case with the $160 billion dollar planned merger of drug manufacturers Pfizer and Allergan:
“The recent planned merger of New York-based drug giant Pfizer’s merger with Irish drug giant Allergan, will create the world’s biggest pharmaceutical company reignited a fierce political debate over whether such deals should be permitted…Under the deal, New York-based Pfizer would move its headquarters to Ireland, where Allergan is based. That would enable Pfizer to slash its tax rate from around 25 percent this year to about 18 percent. Ireland’s lower corporate tax rate would have saved Pfizer nearly $1 billion of the $3.1 billion in U.S. taxes it paid in 2014.”
Clinton noted; “They’re doing it to save money on taxes…I want the Treasury Department to do everything it can to stop that kind of behavior and call it for what it is: gaming the tax system” Specifically with regard to tax-inversions, Clinton’s proposal will impose an ‘exit tax’, which will make these kinds of tax inversions too costly to implement. Additionally, she proposes “raising to 50 percent from 20 percent, the threshold for shares a U.S. company can transfer to a foreign owner to gain tax benefits” making such deals more difficult and less palatable for shareholders.
While both Democrats and Republicans have cited this deal as the need for tax reform, Democrats have “unsuccessfully sought legislation to crack down on inversions since the latest wave began in 2012…Republicans have resisted, arguing that a broader revamp of the tax code should take priority, though Congress hasn’t made progress.”
Pledging to take a much tougher stance on financial regulation overall, Clinton has received the support of Senator Elizabeth Warren, who writing on her Facebook page said; “Secretary Clinton is right to fight back against Republicans trying to sneak Wall Street giveaways into the must-pass government funding bill.”
“Republicans may have decided to forget about the financial crisis that caused so much devastation — but I haven’t.” Clinton went on to say “the proper role of Wall Street is to help Main Street grow and prosper.”
This is more than just about reform or abuse of our tax system. Consider that when individuals and corporations move money offshore and avoid paying taxes, it affects the lives of real people –The $40 billion each year that is moved off-shore is roughly equivalent to total state and local expenditures on firefighters or parks and recreation – or would cover the cost to educate nearly 4 million children for one year. It is far beyond time that we bring back the money that corporations are withholding from the American people and make sure they pay their fair share.