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Study Says States Lose Billions in Offshore Tax Avoidance

State governments in the U.S. lost $39.8 billion in 2011 because of offshore tax avoidance, according to a study released today.

About two-thirds of the lost revenue is from corporations, which can shift profits to low-tax jurisdictions outside the U.S. and avoid paying taxes until they bring the money home. The report was issued by the U.S. Public Interest Research Group, a Washington-based consumer group that often opposes banks and insurance companies.

The report shows that states, like the federal government, are harmed by “tax trickery” of multinational corporations, said Representative Lloyd Doggett, a Texas Democrat on the tax- writing House Ways and Means Committee.

“We have the means with which to close these loopholes,” he said on a conference call with reporters timed to the report’s release. “What we now need is the will.”

California, New York and New Jersey, all of which have income taxes, lost a combined $15 billion, the report said. The report suggested that states “decouple” from the federal tax system so corporate maneuvers to reduce U.S. taxable income don’t automatically affect states.

President Barack Obama has called for limits on companies’ ability to defer U.S. taxes on profits they earn outside the country. Those proposals haven’t advanced in Congress.

To contact the reporter on this story: Richard Rubin in Washington at rrubin12@bloomberg.net

To contact the editor responsible for this story: Jodi Schneider at jschneider50@bloomberg.net

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