DORGAN AND LEVIN RELEASE NEW GAO STUDY REVEALING THAT 71% OF FOREIGN-BASED CORPORATIONS IN U.S. PAID NO FEDERAL INCOME TAX

Friday, April 2, 2004

(WASHINGTON, D.C.) --- A new Government Accounting Office (GAO) study released today by U.S. Senators Byron Dorgan (D-ND) and Carl Levin (D-MI) has found that nearly three quarters of foreign-based corporations operating in the United States paid no U.S. income tax between 1996 and 2000—the latest time period for which Internal Revenue Service (IRS) information is available.

The report reveals that 71% of the foreign-based firms operating in the U.S. during that time period reported no U.S. income tax liability, despite the fact they were making hundreds of billions of dollars in sales here. It also showed those foreign firms that do pay some U.S. taxes report a much smaller average tax liability on their U.S. earnings—in relation to their gross receipts—than do U.S.-based firms.

Dorgan said the study’s conclusion is “stark evidence” that “gaping loopholes” exist in the tax code and its administration and enforcement. Those loopholes, he said, “enable foreign-based companies to move billions of dollars in profit overseas, on income generated in the United States. They don’t pay their fair share, and the net result is that average taxpayers—working families—wind up paying more to make up that difference. That’s not fair or right. We need to put an end to tax avoidance by foreign firms that show no hesitation when it comes to reaping the benefits of the American marketplace.”

The study also reveals that over half of U.S.-based corporations reported no federal income tax liability during the four-year period of the study. That finding, the Senators noted, suggests some tax law administration and enforcement problems are system-wide.

“It is troubling how few corporations, foreign or domestic, pay taxes, but it’s particularly unacceptable that a significantly smaller percentage of foreign-based corporations compared to their U.S. counterparts are paying any tax at all (29% vs. 39%),” said Levin.

“Of those that do pay tax, the foreign-based corporations pay a significantly smaller amount than their U.S-based competitors ($11.88 vs. $14.75 in tax liability per $1,000 in gross receipts),” said Levin. “Too many corporations are finagling ways to dodge paying Uncle Sam, despite the benefits they receive from this country. When companies dodge taxes, it falls on average Americans to pick up the difference. Thwarting corporate tax dodgers will take tax reform and stronger enforcement.”

Given the disparity between reported tax liabilities for foreign and U.S. based firms, the Senators said that tax avoidance appears more widespread among foreign-based companies, and that loopholes allowing income generated in the U.S. to be moved offshore is the likely explanation.

To view the report, click here.

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