A treasure trove of documents given the name of the Paradise Papers was unveiled last week, giving us a clearer idea of how rich people and powerful companies keep their money from the prying eyes of the Internal Revenue Service.
Apple, for example, went hunting for a new tax haven when Ireland, its former shelter, began cracking down. It got help from law firms that specialize in offshore tax shelters to park its $128 billion stash on the English Channel island of Jersey instead. For years, Nike held intellectual property rights in a subsidiary on tax-free Bermuda, and that subsidiary charged fees to its other headquarters, thus shifting the profits to the island and avoiding taxes on them. Now it does the same with a subsidiary that technically resides nowhere at all. Allergan, Facebook and Uber have all been caught doing the same.
Appleby, the law firm at the heart of the documents leak, has 31,000 American clients, most of whom are what are known as “ultra-high-net-worth individuals.” The firm, which has offices in most of the world’s tax havens, helps clients establish trusts and other vehicles for their wealth headquartered on Bermuda to keep the money out of the I.R.S.’s reach.
As those named in the papers contend, many of these maneuvers are perfectly legal. But it isn’t a victimless act when companies and the wealthy shield their money from our government.
The economist Gabriel Zucman and his colleagues have spent years estimating how much wealth is stashed in low-tax havens and what that means for government coffers. He’s found that 63 percent of foreign profits made by American multinational corporations are stuffed in these subsidiaries and accounts, depriving the country of about $70 billion in tax revenue each year.
We worry a lot about the cost of social programs in this country, saying we simply can’t afford many things that we know could bring big rewards. But that missing $70 billion from corporate offshore tax avoidance would go a long way. A mere $140 million could replace the lead water pipes poisoning children in Flint, Mich. It would cost just an estimated $22.5 billion to end homelessness by providing all needy families with rental assistance. President Barack Obama asked Congress for $75 billion for his initial universal preschool plan; universal preschool for all 3- and 4-year-olds would cost $98.4 billion over 10 years.
Senator Bernie Sanders’s College for All Act doesn’t even require the federal government to cover the entire $70 billion cost of public college tuition, but it could if this money were available to the government. Divvying up $70 billion a year to each parent in the country would be a huge step toward ending childhood poverty. And the available pot of money, were offshore tax avoidance not an option, would be even larger if rich individuals were taxed at the rates we all face here at home.
Yet even in the face of the Paradise Papers revelations, Republicans want to lower taxes on big corporations and rich individuals even further.
Businesses and the wealthy, the Republicans’ argument goes, will bring their money back to our shores and pay taxes on it if rates are lower. But there are few mechanisms included in their tax package that would actually push either group to do so, rather than keep it abroad and away from taxation.
The House package included a new tax on intellectual property royalties multinational corporations pay to offshore affiliates in an effort, the writers say, to keep them from moving money to tax shelters. But, after an outcry from those multinationals, an amendment was added on Monday that weakens its impact such that it’s worth 95 percent less. Senate Republicans, meanwhile, haven’t included it in their version of the legislation.
The House package also calls for a one-time tax of 7 percent and 14 percent on offshore earnings that have been stockpiled abroad, and an effective 10 percent rate on “high returns” to a parent company headquartered in this country from foreign subsidiaries, both efforts to supposedly keep multinationals from avoiding taxes. The Senate version proposes even lower rates on offshore earnings. Those rates are far lower than the 20 percent rate Republicans want to levy on corporate profits — and a huge drop from the current rate of 35 percent — leaving an incentive to keep money elsewhere.
The House plan shifts the country to a territorial tax system, in which companies would owe taxes only on money they make here. Money generated abroad in foreign subsidiaries would be subject to the taxes of that country, so they’d have even more incentive to keep it in the low-tax places the Paradise Papers show they’ve already been using.
None of these provisions go after wealthy individuals who keep their money in offshore accounts to avoid paying taxes. Instead, the House package hands these same people a variety of giveaways: an enormous loophole via a lower tax rate on pass-through businesses; the elimination of the alternative minimum tax that ensures they have to pay at least something; and the eradication of the tax on the wealthiest estates.
The groups that are already dodging taxes through offshore accounting are the ones that make out with the biggest benefits. According to an analysis by the conservative Committee for a Responsible Federal Budget, $1 trillion of the overall $1.5 trillion cost is from cuts for businesses. According to the Tax Policy Center, the highest-income families can expect the biggest reward. The richest 0.1 percent of Americans will get an average $278,370 reduction in their tax bill by 2027, while the poorest two-fifths of the country get around $25.
The Republican tax plan would shift more of the tax burden onto those who can least afford to shoulder it and relieve those who are already starving the government of tax revenue. The Paradise Papers shine yet another spotlight on how the rich and powerful game the system to avoid paying what they would otherwise owe. The rest of us suffer for it. Why hand them even more favors?
Bryce Covert is a contributor at The Nation and a contributing opinion writer.