Excerpts from message by Senator Carl Levin

Opening Statement at PSI Hearing: Offshore Profit Shifting and the U.S. Tax Code

Thursday, September 20, 2012

America stands on the edge of a fiscal cliff.  This challenge lends new urgency to a topic this subcommittee has long investigated: how U.S. citizens and corporations have used loopholes and gimmicks to avoid paying taxes.  This subcommittee has demonstrated in hearings and comprehensive reports how various schemes have helped shift income to offshore tax havens and avoid U.S. taxes.  The resulting loss of revenue is one significant cause of the budget deficit, and adds to the tax burden that ordinary Americans bear.

U.S. multinational corporations benefit from the security and stability of the U.S. economy, the productivity and expertise of U.S. workers and the strength of U.S. infrastructure to develop enormously profitable products here in the United States.  But, too often, too many of these corporations use complex structures, dubious transactions and legal fictions to shift the profits from those products overseas, avoiding the taxes that help support our security, stability and productivity.

The share of federal tax revenue contributed by corporations has plummeted in recent decades. That places an additional burden on other taxpayers.  The massive offshore profit shifting that is taking place today is doubly problematic in an era of dire fiscal crisis.  Budget experts across the ideological spectrum are unified in their belief than any serious attempt to address the deficit must include additional federal revenue.  Federal revenue, as a share of our economy, has plummeted to historic lows – about 15 percent of GDP, compared to a historic average of roughly 19 percent.  The Simpson-Bowles report sets a goal for federal revenue at 21 percent of GDP.

The fact that we are today so far short of that goal is, in part, due to multinational corporations avoiding U.S. taxes by shifting their profits offshore.
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The bottom line of our investigation is that some multinationals use our current tax system to engage in shams and gimmicks to avoid paying the taxes they owe.  It is a system that multinationals have used to shift billions of dollars of profit offshore, and avoid billions of dollars in U.S. taxes, to their enormous benefit.  Who are the losers in this shell game?  There are many:
 •The U.S. government, which provides the services and security that help many of those multinational corporations grow and prosper, and then watches them shift their profits offshore to avoid paying taxes;
 •Other citizens and business who must shoulder a greater tax burden;
 •domestic industries that do not exploit the tax code to shift profits offshore and avoid U.S. taxes;
 •the integrity and viability of our tax system.

So today we will take a detailed look at how this system works, the legal contortions on which it is based, its gimmicks and charades, and hopefully, we'll generate some enthusiasm to fix it.