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February 9, 2014

MAUREEN HAYDEN: Offshore tax havens undermine state

INDIANAPOLIS — Gov. Mike Pence has spent months pushing the idea of repealing the tax on business equipment that provides $1 billion a year to schools, libraries and local governments. He’s yet to come up with a plan to replace those lost tax dollars.

Pence argues that freeing businesses from the burden of taxes on their equipment will spur growth. That, in turn, will lead to prosperity that will boost the fortunes of local communities.

Elkhart County Commissioner Mike Yoder has another idea. To replace the tax revenue lost by the locals, the state should go after dollars lost to offshore tax havens used by businesses.

“Why aren’t we recouping some of that tax revenue?” Yoder said. “The state could go after that money and turn it over to the locals as replacement revenue.”

It’s a question asked only half in jest. According to a new report published in Governing magazine, state governments failed to collect more than $20 billion in taxes in 2011 from corporations that socked away money in the Cayman Islands and other well-known tax havens.

The report, by the U.S. Public Interest Research Group, identified 31 states that saw more than $100 million in corporate tax revenue go uncollected in 2011. Indiana is one. According to the report, it lost $463 million to offshore tax havens.

Only two states, Montana and Oregon, have passed laws to recoup some of that money, by requiring companies to report profits from subsidiaries in foreign countries known for their tax-dodging loopholes. The PIRG report speculates on one reason that more states haven’t moved: Well-funded business groups employ ample resources to oppose tax reforms.

Whatever is behind Indiana’s losses to offshore tax havens, the proposal from Yoder is compelling for another reason.

The county commissioner is a fiscally conservative, business-supporting Republican – just like the governor. He too wants to see prosperity return to his community, which was hit hard by the recession that cut deeply into his county’s manufacturing economy.

The owner of a family farm, who’s in his third term as a commissioner, Yoder has already witnessed what happens when local government loses revenue. Between 2009 and 2010, Elkhart County cut $11 million in expenses. He’s proud to say they did it without cutting essential public services.

He’s doubtful he can make that claim again. The end of the business personal property tax would take about $2.4 million from the Elkhart County government each year, on top of $4.6 million it already loses because of property tax caps imposed by the Legislature in 2008. In all, Elkhart County’s local governments, schools and libraries could lose more than $23 million a year.

Yoder’s vocal disagreement with Pence is echoed by mayors and county officials – Republicans and Democrats – throughout Indiana. They can’t see how local governments will function if so much of the money they’ve relied on to pay police, pave local streets and provide other services goes missing.

The governor keeps promising those local leaders that their communities won’t be “unduly harmed” by his plan. His continued refusal to define what that means confounds them.

And it causes a loyal Republican like Yoder to fear the worst.

“It’s just going to rip the heart out of local government,” he said.

Maureen Hayden covers the Statehouse for CNHI, the Tribune-Star’s parent company. She can be reached at maureen.hayden@indianamediagroup.com. Follow her on Twitter @MaureenHayden.

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