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Politics/Policy

Companies' Foreign Tax Havens Cost You Plenty Microsoft, Pfizer, and other businesses avoid U.S. taxes by keeping billions in profits overseas.

Here's what the revenue would add up to, per person, if states and the IRS could get it.

States that would gain the most per capita

It O Less than$750 0$750-$999 0 $1,000 -$1,249

$1,250 -$1,500 • More than $1,500

Oregon

$1,022 A 2013 state law requires companies to report and pay taxes on profits stashed in 39 overseas havens

Montana

$1126 The first to recover overseas taxes with a 2003 law that's a model for other states

school spending, and simple inflation will tend to cause spending to rise, not fall, in the years ahead. The question is whether Brownback will still be in office to try to keep that from happening. -Peter Coy

The bottom line In Kansas, income growth is

lower than neighboring states' despite-

or because of-steep tax and budget cuts.

Taxes

States Target Corporate Cash Stashed Overseas

► Laws require companies to pay state taxes on sheltered profits

► It's "not smart, and not fair" to let

businesses hide money abroad

Members of Congress have complained for years about U.S. corporations that park profits overseas to avoid paying federal taxes. Yet efforts to pass corporate tax reform that includes incentives and penalties to prod busi­ nesses into bringing that money home have stalled in Washington. Tired of waiting for a fix, several states are going after state tax dollars that disappear into offshore havens.

Oregon enacted a bill last June for the

2014 tax year identifying 39 countries and territories-including Barbados, Liberia, and the U.S. Virgin Islands- as corporate shelters. The state counts profits that corporations and their subsidiaries stash in shelter countries as taxable income, and companies that do business in the state must report it on their state tax returns and pay up. On April 16 the Democrat-controlled Maine legislature gave final approval to similar legislation, over objections from some Republicans that it's anti­ business. Minnesota and Rhode Island are studying whether to pursue bills of their own. "The issue at hand is one of fairness," Maine Representative Adam Goode, a Democrat from Bangor, said during the debate on the bill he spon­ sored. "It really just seemed not in balance, not smart, and not fair that we would allow multinational corpo­ rations to hide their corporate income in a place like the Cayman Islands or in Bermuda."

Offshore tax shelters cost the federal government $30 billion to $90 billion annually, according to a 2013 Congressional Research Service report. The U.S. Public Interest Research Group, which tracks corporate taxes, puts the amount that states lose at $20 billion a year. The largest U.S.­ based multinational companies have accumulated $1.95 trillion in profits

District of Columbia $2,783

North Dakota $2,547

Wyoming $2,546

Connecticut $2,537

New York $1,919

Massachusetts $1,886

California $1,783

New Jersey $1,560

Illinois $1,396

Colorado $1,361

DATA: U.S, PIRG

outside the U.S. That's up $206 billion, t or 11.8 percent, from a year earlier, according to securities filings from 307 corporations.

Microsoft, Apple, and IBM accounted for $37-5 billion, or 18.2 percent, of the total increase during the past year. Caterpillar avoided $2.4 billion in U.S. taxes over more than a decade by shifting profits from a parts business to a subsidiary in Switzerland, according to a report issued on March 31 by a Senate committee. The company says the move was legal and appropriate.

"To the extent that they have figured out ways to avoid paying their proper share, then it's our job to try to prevent them," says Oregon State Representative Phil Barnhart, a Democrat who spon­ sored tax-haven legislation there. The model for the recent legislation is Montana, which began taxing shel­ tered profits a decade ago, followed by Alaska, West Virginia, and the District of Columbia. Montana recouped $7.1 million in taxes in 2010 from com­ panies that held money in five top havens, according to a 2012 state report. Oregon estimates its new law will allow it to bring in $18 million a year initially. Maine projects $5 million in additional yearly tax revenue if Governor Paul Le Page, a Republican, signs the bill. (He hasn't said whether he will.) That's not much by Washington standards, ►

Read "States Target Corporate Cash Stashed Overseas," by Niquette and Rubin, from Bloomberg Businessweek (2014). URL: https://lopes.idm.oclc.org/login?url=http://search.ebscohost.com.lopes.idm.oclc.org/login.aspx? direct=true&db=bth&AN=95663541&site=ehost-live&scope=site

Politics/Policy

A but it's a sizable windfall for smaller states struggling to meet their budgets.

Few of the states that have passed or are contemplating tax-haven legisla- tion are home to a large multinational such as Microsoft, which is based in Washington, or Apple in California, IBM in New York, or Caterpillar in Illinois. Those states would stand to collect far more from such measures. California lost the most to offshore havens in 20lt, an estimated $3.3 billion, the Public Interest Research Group reports. Ron Erickson, a former lawmaker who spon- sored Montana's bill in 2003, expects more states to start demanding their share. "I'm discouraged that it's gone this slowly," he says, "but I'm also of the confident sort that thinks that eventually fairness wins out." —Mark Niquette with Richard Rubin

The bottom line States want their share of $20 billion in lost tax revenue from companies that park profits in foreign tax havens.

Tradt

Delta Attempts to Ground T h e Bank of Boeing'

• The airline demands an end to U.S. loans to help foreign rivals buy jets

• The Export-Import bank is a "corporate-welfare slush fund"

This year Congress will debate whether to renew the charter of the Export- Import Bank, the 80-year-old federal institution that helps U.S. compa- nies sell products and services over- seas by providing loan guarantees and

otber sweeteners to foreign buyers. And like the last time the bank came up for renewal, in 2012, that debate will reig- nite a bitter, years-long feud between two big American companies: Boeing, which lobbies furiously to protect the bank, and Delta Air Lines, which presses just as hard to eliminate the bank's finan- cial aid for foreign buyers of Boeing's largest jets-who also happen to be Delta rivals.

The Ex-Im Bank put up $27.3 billion in 2013 to help small and large U.S. companies close deals overseas. It provided a South African company with $230 million in loan guaran- tees to buy 100 locomotives built by General Electric and gave a $155 million direct loan to the Republic of Ghana to finance a hospital expan- sion designed and built by Miami- based Americaribe. Over the years, though, no U.S. company has bene- fited more from the agency's largesse than Boeing. In 2013, the Ex-Im Bank offered $7.9 billion in loan guarantees to help the manufacturer sell 106 of its airplanes to foreign airlines in two dozen countries, reinforcing Ex-Im's Washington nickname-"the Bank of Boeing."

Delta, a major purchaser of Boeing jets, says the bank gives an unfair boost to its overseas competitors. In an April 7 letter to the House Committee on Financial Services, Lee Moak, a Delta captain who's president of the Air Line Pilots Association, said the "bank's unnecessary financing of wide-body aircraft" gives foreign car- riers an "annual economic advan- tage" of $2 milfion per aircraft.

'People on both sides of the political spectrum see that government should not be picking winners and losers."

Senator Mike Lee

(Boeing disputes this figure.) Conservative groups and their allies in Congress have taken up the cause, saying the bank isn't needed because foreign companies can get financ- ing without the Ex-Im Bank's help. They also argue it bene- fits some U.S. companies over others. "People on both sides of the political spectrum see

that government should not be picking winners and losers in business," says Republican Senator Mike Lee of Utah, who wants to close the bank. The Club for Growth calls the Ex-Im Bank a "corporate-welfare slush fund."

Those are the same words Barack Obama used to describe it when he was running against government breaks for big corporations as a pres- idential candidate in 2008. He's since changed his mind and joins most Democrats in backing the bank and praising the financial aid that makes Boeing and other U.S. companies more attractive to foreign customers. Boeing President and Chief Operating Officer Dennis Muilenburg told an April 3 meeting of the U.S. Chamber of Commerce-which supports the Ex-Im Bank-that it's an "important tool" helping U.S. exporters to better compete around the world. The chamber and other backers point out that Airbus receives generous export credit assistance from European gov- ernments. Ending the bank's financ- ing for large aircraft exports "would amount to unilateral disarma- ment," Muilenburg said.

Bank officials say their loans and guar- antees cUnch deals that

Jets vs. Jobs

In 2011 court documents, Delta Air Lines blamed the Export-Import Bank for a loss of as many as

7500 U.S. airline jobs, saying foreign airlines increased their passenger capacity after buying Boeing jets using Ex-Im Bank loan guarantees.

E LTA

In Its 2013 annual report, the Ex-Im Bank countered that its lending helped companies—including Boeing—sell billions of dollars worth of U.S.-made products overseas, supporting more than

2 U.S.jobs.

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