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posted: 3/8/2013 5:00 AM

Budget solution is hiding in the Caymans

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  • Anu Danath

    Anu Danath


The budget fights in both Washington, D.C. and Springfield are looking predictably ugly this year, and they are shaping up along familiar lines: Do we raise taxes? Do we sink deeper in debt? Which programs do we cut -- and how deeply?

Fueling these debates are the automatic, across-the-board federal spending cuts that are now taking effect. These cuts intentionally make no distinction between public priorities and wasteful spending, cutting both with equal abandon. The cuts to military spending and Medicare are getting most of the attention, but the impact doesn't stop there. Food safety programs will be forced to cancel 2,100 safety inspections, the FBI and other law enforcement agencies will lose the equivalent of 1,000 federal agents, and 1.2 million disadvantaged students can lose education grants.

Fortunately there are other solutions, one of which is hiding in plain sight. Food safety, law enforcement and education are getting cut while the nation's largest, most profitable corporations use loopholes to avoid paying the taxes they should.

Many American corporations and individuals use complicated accounting tricks to take advantage of loopholes in the tax code by moving their U.S. income to shell companies in tax havens like the Cayman Islands. They pay little or no taxes on those profits, leaving the rest of us -- average citizens and small businesses -- to pick up the tab. Each year, the federal treasury loses an estimated $150 billion in revenue to offshore tax havens.

This tax dodging contributes to our state's budget crisis as well. According to a recent Illinois PIRG report, Illinois taxpayers lost more than $2.5 billion to offshore tax havens last year. That's enough money to pay the salaries of every Chicago Public School teacher or to cover public transportation in the Chicagoland area. Or, it could pay the tuition of every single University of Illinois student twice over. In his recent budget address, Gov. Pat Quinn proposed solutions that would stop this drain of revenue and help solve Illinois' budget woes. It's time for our federal government to do the same nationally.

Closing these offshore tax loopholes should be an obvious first step to lessen our budget woes at both the state and federal level. At the federal level, closing tax loopholes in time would have generated more than enough revenue to offset the impending budget cuts entirely and can still make a big impact in the budget fight.

Unfortunately, the use of tax havens has become standard practice in corporate America. At least 83 of the 100 largest publicly traded American corporations have subsidiaries in tax haven countries. That includes some of our largest financial institutions and technology companies, which use a total of 551 offshore subsidiaries to avoid taxes.

It's time for this free ride to end. These companies benefit from our nation's educated workforce, infrastructure and security, yet they do everything they can to avoid paying what they should. When corporations don't pay, they dump their tax burden on the rest of us, forcing us to make up the difference through cuts to public services, a bigger deficit, or higher taxes on citizens and small businesses.

Small business owners, hardworking folks and American families have differing views on the amount of taxes they should be paying. Here, we are not advocating for higher or lower taxes. We are simply arguing for fair taxes. Closing offshore tax loopholes should be at the top of every lawmaker's list, regardless of their party affiliation. With serious budget challenges before us, now is the time to put these tax loopholes to rest.

• Anu Dathan is a program associate with Illinois Public Interest Research Group (PIRG), a statewide nonpartisan, nonprofit public interest organization that works to promote the interests of Illinois citizens.

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