College Professors Release Study That Shows U.S. Government Cheated Out of $42.7 Billion in Tax Revenues in 1999
MIAMI, May 31 /PRNewswire/ -- According to an in-depth computer analysis conducted by two Florida International University College of Business Administration finance professors, the United States government lost more than $42 billion in tax revenues in 1999 due to the artificial overpricing and underpricing of products entering and leaving the United States. The practice of abnormal trade pricing results in profits being shifted abroad, thus enabling individuals and firms to avoid or reduce their U.S. tax liability. The College of Business Administration professors, Simon Pak and John Zdanowicz, released a study today showing that a conservative estimate of tax loss during 1999 due to abnormal pricing in international trade was $42.71 billion -- more than $117 million per day. "It appears that tax revenue lost through abnormal pricing in international trade is increasing. Using the same research methodology, our 1998 estimate of lost tax revenues was $35.6 billion," Pak said. In addition to the dollar value increase in lost tax revenues in 1999, the professors discovered that these tax losses, as a percentage of total U.S. trade, increased from 2.23% in 1998 to 2.49% in 1999. Zdanowicz said he believes that losses in U.S. tax revenues will continue to be a growing problem due to increased tax evasion and money laundering activities being facilitated by false invoicing in international trade. "Criminals and tax evaders have discovered that laundering money through the banking system is dangerous, but it is virtually undetectable in international trade," he said. "Law enforcement agencies do not have the capability of analyzing every U.S. trade transaction." The FIU researchers began analyzing U.S. trade figures eight years ago after reading that then-presidential candidate Bill Clinton predicted that the government would lose $45 billion in corporate income taxes during the four- year period between 1992 and 1995 due to international transfer pricing manipulations. Clinton argued during his first presidential campaign that the federal government could help reduce the national deficit by actively pursuing corporate tax cheaters. The FIU professors' research demonstrates that Clinton's economists greatly underestimated the extent of the problem. Pak and Zdanowicz have developed and perfected the computer software necessary to analyze every U.S. trade transaction contained in the U.S. Department of Commerce's "Merchandise Trade" data base. As a result, they can detect every single abnormally-priced import and export transaction. In their study, Pak and Zdanowicz assumed that import and export prices were abnormal if they deviated above or below the inter-quartile range of all prices, as defined in the 1994 "Inter-company Transfer Pricing Regulations Under Section 482" of the Internal Revenue Service tax code. They also assumed that every dollar of taxable income shifted out of the United States would have been taxed at 34%. Canada tops the list of countries with the highest amount of estimated U.S. tax losses due to abnormal trade pricing in 1999. Trade with other countries that resulted in large U.S. tax losses include Japan, Mexico, and Germany (see Chart A.). Examples of abnormally priced transactions that were uncovered in the study include safety razor blades being imported from Singapore for $2,952 each; apple juice imported from Israel for $2,052 per liter; dump trucks exported to India for $2,866 each, and missile/rocket launchers exported to Venezuela for $59.50 each (See Charts B and C.). For more information about the study, call the FIU Center for Banking and Financial Institutions at (305) 348-2771. Florida International University Chart A: TOP 10
SOURCES OF LOST U.S. TAXES DUE TO ABNORMAL TRADE PRICING 1999 Income Shifted and Federal Income Tax Losses -- ($ millions) Tax Loss Income @34% Shifted All Countries $42,712 $125,624 Canada $5,289 $15,555 Japan $4,151 $12,207 Mexico $3,707 $10,904 Germany $3,316 $9,754 United Kingdom $2,920 $8,589 China $2,462 $7,242 Taiwan $1,666 $4,900 France $1,416 $4,166 Korea, South $1,351 $3,973 Australia $1,331 $3,916 DAILY LOST U.S. INCOME TAX REVENUES $42,712,106,652/365 = $117,019,470 per day Chart B: ABNORMALLY HIGH U.S. IMPORTS Hacksaw Blades (Base Metal) Canada $ 7,000.00/unit Mineral Water Netherlands $ 3,050.00/liter Apple Juice Israel $ 2,052.00/liter Plain Cotton Handkerchiefs Italy $ 1,120.00/dozen Clothespins Germany $ 720.00/gross Unrecorded Magnetic Disks Sweden $ 4,201.00/unit Plant Cuttings Colombia $ 512.77/unit Christmas Tree Lights Canada $ 815.00/unit Disposable Plastic Gloves Japan $ 46.22/pair Wood Molding Indonesia $ 281.94/Meter Telephones -- One Line, No Features Denmark $ 2,480.00/unit Wine Russia $ 464.56/liter Typewriter Ribbons Czech $ 377.67/unit Safety Razor Blades Singapore $ 2,952.00/unit Unwrought Silver Canada $ 9,995.00/gram Nitric Acid Mexico $ 5,977.00/kg Ball Point Pens Trinidad $ 8,500.00/unit Aluminum Cans (4-20 liters) U.K. $ 8,000.00/unit Silver Powder Brazil $ 7,382.00/gram Flashlight Lamps Taiwan $ 3,875.00/unit Wrist Watch Batteries China $ 8,252.00/unit Chart C: ABNORMALLY LOW U.S. EXPORTS Prefabricated Buildings Mexico $ 1.71/unit Human Blood Plasma Belgium $ 1.57/kilogram Electrical Tape Mexico $ .01/sq meter Radial Tires - Tractor Germany $ 10.46/unit Dump Trucks India $ 2,866.00/unit Gas Pumps Brazil $ 2.40/unit Television Antennas Panama $ .38/unit Knives -- Not Fixed Blade Italy $ .01/unit Bulldozers Venezuela $ 387.83/unit Seats for Aircraft China $ .10/unit Automatic Teller Machines Dom.Rep. $ 45.25/unit Single Lens Reflex Cameras Venezuela $ 3.53/unit Missile and Rocket Launchers Venezuela $ 59.50/unit Tractors Canada $ 448.41/unit Passenger Motor Vehicles Ecuador $ 17.13/unit Venetian Blinds - Plastic Germany $ .012/unit Wrist Watches - Precious Metal Hong Kong $ 7.05/unit New Military Aircraft U.K. $ 40,000.00/unit Gold Compound Colombia $ 4.76/kilogram
SOURCE Florida International University
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