Offshore Tax Avoidance Isn’t as Big a Deal as You May Think

There are some things we just love to hate. Like Nazis. Or Fiat cars. To that category, we can add greedy corporate executives.

Don’t you detest how they sit in their lavish offices all day counting money while the rest of us work our keisters off just to fatten their pockets. Those despicable one percenters will do anything to get out of paying their fair due to the country, including moving money to off shore account in tax haven countries. Surely it doesn’t get any lower than that, right?

Well, the truth of the matter isn’t as black and white as it sounds.

It’s true that big American companies have a lot of money deposited in foreign accounts. A combined study by members of Citizens for Tax Justice and the US PIRG Education Fund found that US firms hold about $2.1 trillion overseas, which would provide Uncle Sam with $620 in taxable income. That’s a lot of paid vacation days for our elected officials.

Among the perpetrators is Apple, which at $181.1 billion, holds more money overseas than any other US company. Everyone in the world loves the iPhone. Also on the list are GE, which has $119 outside the country, and Pfizer, whose tax-haven funds amount to $74 billion.

These corporations deposit the money in nations like Ireland, Bermuda, the Netherlands, and other tax havens. These companies are moving money around shadily to escape paying taxes and should be made to swiftly pay back every cent they’ve stolen from the American people, right?

That’s the kind of sentiment echoed by UC Berkeley economist Gabriel Zucman, who’s gone out of his way to write an entire book dedicated to exposing the evil of offshore tax evasion. But on closer reflection, it’s a sentiment that’s based on a mistaken understanding of how businesses manage their foreign operations.

Do these companies want to avoid paying taxes if they can do so legally? Of course. Don’t we all? Don’t we take every tax deduction possible, writing off our gas expenses and even a cup of coffee if we can somehow tie it  in to our small business? Trying to save your hard-earned money is human nature, and if the law provides a way to do it, you’re going to take advantage of the situation.

These major US firms are being smart, maybe even sneaky, but not necessarily illegal or even malicious. The IRS is all about cracking down on people who owe the federal government. Considering they’ll bring down their authority on Joe Schmoe for a few thousand bucks, why aren’t they taking definitive action against huge corporations when their offshore earnings are no secret? Such a course would make for the IRS’s single biggest payday.

The answer: The IRS doesn’t have a solid case against these firms, because what they’re doing isn’t a true evasion of US tax law. While there are more than likely some cases of true tax evasion out there, most of the funds in tax havens are revenue made abroad. Apple may be a US-based company, but its holdings in Ireland come from manufacturing products in China and selling them in the UK. The US was never involved, so it has no claim to the money.

If the federal government were to start taxing corporations higher to get more of that cash, they would only end up hurting the good, ordinary people who work at and invest in these highly influential businesses. If making the rich pay their due is a priority, taxing individuals is the better way to go. Meanwhile, let’s not create cases of corporate excess where they don’t exist—there are enough real ones to worry about already.