States Losing Possible Revenue to Tax Havens

February 8, 2013 at 12:09 pm

The organization U.S. Public Interest Research Groups (PIRG) released a new study this week looking at the impact of offshore tax havens on state revenues and budgets.  Tax havens is a term used to refer to countries or jurisdictions that attract corporate interest through their minimal or non-existent tax codes.  This allows companies to reduce their tax bill in their home country. For more on how tax havens can be created, listen to this Planet Money episode where the staff created their own Offshore company as a tax haven.

The difficulty in studying tax havens is due to the general nature of their existence.  They are created through the loopholes created in federal and international law, which makes it hard to determine when a tax haven is created.  At the moment, researchers can only estimate on what the impact of these practices are on international economies.  What is unique about the PIRG research is that it estimates the impact of these laws not only on federal revenues, but also on each individual state.  PIRG estimates that “states lost approximately $39.8 billion in tax revenues” in 2011. Of this $39.8 billion, they estimate that North Carolina alone lost $1.049 billion in taxable dollars. That is the ninth most for an individual state.

As legislature over the country look at ways to balance their budgets and reform their tax codes, U.S. PIRG suggests that states work independently to reduce the impact of this financing loss.  States have the power to do things like require increased financial disclosures from corporations’ with foreign presences, start to shore up loopholes in their own tax code, work with federal representatives to encourage a more global approach to tax evaluation, and other suggestions.

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Entry filed under: Financial Reform.

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