Saturday, February 14, 2009

US tax gap: new analysis

We'd like to point you towards the "Magnitudes" section of our website, which if you haven't seen it before contains a significant number of estimates of the offshore and tax abuse problems, from around the world.

For those interested in these technical details, we've just updated one section (scroll down to the bottom), which relates to the U.S. tax gap, reflecting new US Treasury research suggesting that an earlier $345 billion US Internal Revenue Service (IRS) estimate for the total U.S. tax gap didn't include the full international tax gap (of up to $123 billion, or a round $100 billion that Senator Carl Levin) uses - because the IRS hasn't measured the international tax gap.

The new text on our website reads as follows:

"The U.S. IRS estimated in 2001 that the total tax gap stands at $345 billion, which Senator Carl Levin said in 2007 represented unpaid taxes each year owed by individuals, corporations and other organisations who "offload their tax burden onto the backs of honest taxpayers."

The IRS has not produced estimates of the international tax gap (= "all revenue losses resulting from noncompliance with the U.S. tax laws due to international transactions") but Levin cited a figure of around $100 billion." However, a January 2009 report by the US Treasury said that because the IRS did not measure the international tax gap, it was unlikely that the international tax gap is comprehensively included in the IRS' $345bn figure. Other specific estimates exist:

  • Estimates from Professor Reuven Avi-Yonah and tax expert Joe Guttentag that offshore tax haven abuses by individuals alone cost the U.S. Treasury $40-$70 billion a year in unpaid taxes.
  • Professors Simon J. Pak and John Zdanowicz found that transfer pricing abuses by corporations cost the U.S. Treasury about $53 billion per year in lost tax revenue. See the executive summary of their original short research report, studying 2001 data, here.
  • The combined totals of these two has been quoted by the US Treasury in 2009 as providing a range of $40-123 billion annually, though the $40bn figure assumes zero transfer pricing loss.
  • A 2004 study by the journal Tax Notes which found that American companies shifted $149 billion of profits to 18 tax haven countries in 2002, up 68 percent from 1999.
  • A preliminary estimate by Professor Kimberly Clausing of Wellesley College that the U.S. Treasury lost $50 billion in tax revenues in 2002 from profit-shifting by corporations to low-tax countries."
We've also updated the website to include Richard Murphy's new estimate for the UK's tax losses to tax havens, at $18.5 billion.

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