As members of Congress in the United States debate deep and painful budget cuts, people of faith should raise our voices against an unfair system that enables profitable U.S. corporations to dodge taxes, depleting an estimated $100 billion from the U.S. Treasury each year. Instead of cutting $1 trillion over the next decade from programs that assist the poor and ensure greater opportunity, we should eliminate these destructive tax gimmicks.
Recent reports show that aggressive tax dodgers such as General Electric, Boeing, and Pfizer, avoid billions in taxes a year. They use accounting gymnastics to pretend they are making profits in offshore subsidiaries incorporated in low- or no-tax countries like the Cayman Islands, thereby reducing their tax obligations in the United States. This system is unfair to domestic businesses that have to compete on an un-level playing field.
Nicholas Shaxson's new book, Treasure Islands: Uncovering the Damage of Offshore Banking and Tax Havens, tells this story in riveting detail. Shaxson, a veteran journalist based in Switzerland, slices through the technical jargon to reveal the devastating impact of what he calls "the offshore system" on economic health and regulation, global poverty, and our state and federal budget deficits.
At the heart of the global system of offshore tax havens is the transfer of wealth -- away from local communities and the global south, into the bank accounts of the planet's wealthiest and most powerful citizens and corporations.
For those who care about global poverty and development, the offshore system is the means by which wealthy elites move their money out of the nations of the global south -- and why resource rich nations are unable to effectively tax the corporations that extract their natural wealth. Shaxson cites reports that estimate that trillions of dollars of illicit funds have flowed out of African countries over the last two decades.
Tax havens -- or more accurately "secrecy jurisdictions" -- are the same mechanisms that facilitate criminal activity, from drug money laundering to terrorist financing networks.
According to Shaxson, there are about 60 "secrecy jurisdictions" around the world -- countries with loose incorporation rules, bank reporting, and financial transparency requirements. Those of us in the U.S. are most familiar with some of the Caribbean tax havens such the Cayman Islands, Bermuda, and the Bahamas. But technology and pharmacy companies often create subsidiaries in countries like Ireland and the Netherlands to hold patents and intellectual property to reduce U.S. taxes.
The offshore system has spawned a huge tax avoidance industry, with teams of lawyers and accountants who add nothing to the efficiency of markets or products. Instead of making a better widget, they invest in designing a better tax scam. Recent stories about General Electric's storied tax dodging dramatize the ways that modern multinationals view their tax accounting departments as profit centers.
Shaxson argues that almost every major economic story and crisis can trace its roots back to the offshore system. The financial practices of the "shadow banking system" that triggered the 2008 global economic meltdown were facilitated through an opaque and unaccountable finance sector built around layers of offshore tax havens. The two biggest recipients of taxpayer bailout funds are, by no coincidence, huge users of the offshore system: Citigroup has 427 subsidies in tax havens, and Bank of America has 115.
The current budget debate is bringing new attention to corporate tax dodging as a fiscal issue. On July 12, Senator Carl Levin (D-MI) introduced an updated version of the Stop Tax Haven Abuse Act, a comprehensive bill that would close down huge amounts of illicit flows and tax gimmicks.
Ironically, some of the biggest tax dodgers are pressing for special treatment. A coalition of more than 20 U.S. companies have launched their "WinAmerica" campaign to lobby a "tax holiday" on $1.2 trillion in overseas profits they want to bring back to the United States.
Opposing these measures is a whole grassroots movement, US Uncut, that has emerged to argue: "No Budget Cuts Until Tax Dodgers Pay Up." There is no need to institute austerity budget cuts at the state and federal level so long as global companies are gaming the system. And religious voices need to be part of this movement to explain the fundamental injustice of the offshore system. We must close it down.
Chuck Collins is a senior scholar at the Institute for Policy Studies where he directs the Program on Inequality and the Common Good. He is co-author, with Mary Wright, of The Moral Measure of the Economy (Orbis Books) and with Bill Gates Sr. of Wealth and Our Commonwealth: Why America Should Tax Accumulated Fortunes (Beacon).
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