Executive Summary

Some U.S.-based multinational firms or individuals avoid paying U.S. taxes by transferring their earnings to tax haven countries with minimal or no taxes. These tax haven users benefit from their access to America’s markets, workforce, infrastructure and security; but they pay little or nothing for it—violating the basic fairness of the tax system and forcing other taxpayers to pick up the tab.

Even when tax haven abusers act perfectly legally, they force other Americans to shoulder the burden in a variety of ways. The taxes they don’t pay must be balanced by other Americans paying higher taxes, coping with cuts to public spending priorities, or increasing the federal debt.

Congressional studies conclude tax haven abuse costs the United States approximately $100 billion in tax revenues every year. Multinational corporations account for $60 billion and individuals the rest.

If ordinary tax filers were to pick up the full $100 billion tab in the form of higher taxes, they would need to pay an additional $426 on average. That’s enough money to feed a family of four for three weeks.

The states where taxpayers pick up the largest share of the tab are Delaware and Minnesota. On average, tax filers in those states would pay an additional $1,317 and $774, respectively.

Based on the $60 billion multinational corporations avoided in taxes, small business in the United States would need to pay an average of $2,116 each in additional taxes. Small businesses can be hit particularly hard by the effects of tax havens because they are generally unable to use these tax schemes and are put at a competitive disadvantage.

If the $60 billion burden from multinational companies using tax havens were shouldered entirely by small businesses, each state’s small businesses would have to chip in hundreds of millions or even billions of dollars more. The largest total sums would be shouldered by small businesses in California ($7.1 billion), New York ($5.2 billion), Texas ($4.9 billion), Illinois ($3.0 billion), Ohio ($3.0 billion) and New Jersey ($2.9 billion).

Because some local counties have more small businesses than others, the tab from multinational corporations’ use of tax havens is not felt evenly throughout each state. The following five counties face the greatest extra burden: Los Angeles County, California ($2.1 billion); Cook County, Illinois ( $1. 4 billion); Harris County, Texas ($870 million); New York County, New York ( $790 million); Kings County, New York ($680 million).

Some of America’s biggest companies use tax havens, including many who have taken advantage of government bailouts or rely on government contracts. As of 2008, the most recent data available, 83 of the 100 largest publicly traded U.S. corporations maintained revenues in offshore tax haven countries.

Wells Fargo avoided paying nearly $18 billion in federal income tax from 2008-10, in part by using 58 subsidiaries in offshore tax havens. During that same time period, the company reported about $49 billion in profit to shareholders. Even with those profits and tax subsidies, at the end of that period Wells Fargo still hadn’t repaid some $5 billion in bailout money.

avoided paying nearly $18 billion in federal income tax from 2008-10, in part by using 58 subsidiaries in offshore tax havens. During that same time period, the company reported about $49 billion in profit to shareholders. Even with those profits and tax subsidies, at the end of that period Wells Fargo still hadn’t repaid some $5 billion in bailout money. eBay received a tax refund of $131 million in 2010, despite reporting pre-tax profits of $848 million to their shareholders and paying its CEO $12.4 million. eBay’s tax avoidance strategies include 31 subsidiaries in 9 tax havens.

received a tax refund of $131 million in 2010, despite reporting pre-tax profits of $848 million to their shareholders and paying its CEO $12.4 million. eBay’s tax avoidance strategies include 31 subsidiaries in 9 tax havens. Prudential Financial received a federal income tax refund of $722 million in 2010, despite reporting $2.4 billion in profits that year. Prudential uses 36 tax haven subsidiaries to help achieve that feat.

To restore fairness to the tax system by preventing corporations and wealthy individuals from avoiding taxes through the use of tax havens, policymakers should: