Tax havens in U.S. cross hairs

R.A. Hettinga rah at shipwright.com
Sun Jun 8 12:05:56 PDT 2008


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Christian Science Monitor

TAX HAVENS IN U.S. CROSS HAIRS
With $345 billion in lost revenue, tolerance for off-shore avoidance
fades.
By David R. Francis

from the June 9, 2008 edition

When Barack Obama or John McCain enter the White House next January,
either one will face a crucial problem: How to raise revenues or cut
spending to shrink the massive federal budget deficit.

Tax economist Martin Sullivan suspects that Senator Obama will go for
the "low-hanging fruit" first  that is, chasing down wealthy tax
evaders, individual and corporate. Obama signed on to the Tax Haven
Abuse Act, a bill introduced in 2007 by Sens. Carl Levin (D) of
Michigan and Norm Coleman (R) of Minnesota.

Senator Levin figures that secretive offshore tax havens cost the
federal government $100 billion in lost tax revenues each year. That's
part of the total "tax gap"  the amount of unpaid taxes owed by
individuals, corporations, and other organizations  estimated by the
Internal Revenue Service (IRS) to be $345 billion.
As Levin sees it, these tax evaders are "willing to rob Uncle Sam and
offload their tax burden onto the backs of honest taxpayers." His bill
will be reintroduced next year. If the nation's economic woes
continue, lawmakers will probably have a more difficult time opposing
legislation that could raise billions by thwarting efforts that amount
to illegal tax evasion.

Tax havens have existed for many decades. That's because some
commercial banks have effectively blocked legislation to curtail their
activities, explains Lucy Comisar, co-chair of the US wing of the Tax
Justice Network, a London-based group. Banks, she charges, make a "lot
of money" from placing private financial accounts in such places as
the Cayman Islands, Bermuda, the Isle of Man, etc. The business has
been growing for years.

But the tolerance toward tax havens on both sides of the Atlantic
appears to be weakening. In Europe, tax havens were brought into the
public eye this year by a juicy scandal involving secret bank accounts
in Liechtenstein. A multimillion dollar sum was paid to an informer
who provided hundreds of names behind tax-dodging accounts held by
German business tycoons, about 100 American taxpayers, and tax cheats
from other nations.

In Washington, the IRS stated in February that it is "initiating
enforcement action" against the 100. It said "combating off-shore tax
avoidance and evasion are high priorities." But so far, no further
word on the action has emerged.

The Bush administration, in Ms. Comisar's view, has been inadequate in
tackling tax-haven losses. While Senator McCain hasn't talked about
tax havens on the campaign trail, Obama has frequently referred to
Ugland House in Grand Cayman, a building that houses thousands of tax
haven corporations, as "the biggest tax scam on record."
Comisar is hopeful that Obama will push for the Levin bill, if
elected. Maybe closing or limiting tax havens is "an idea whose time
has come," she says.

Mr. Sullivan sees greater efforts to close tax havens as a "twofer."
It would raise substantial revenues. It also would trim the growing
income gap in the United States between the wealthy and the middle and
lower classes, since the wealthy are more likely to use tax havens
than those with less income.

An IRS report obtained by the Wall Street Journal in March indicated
that the nation's top 400 income-tax payers (with at least $100.3
billion in adjusted gross income) controlled 1.15 percent of the
nation's total income in 2005  twice the share they controlled in
1995. Over that same period, the average effective income tax rate
paid by this same group fell from 30 percent to 18 percent. The Bush
tax cuts aided this shift. Also, there is a suspicion that the use of
tax havens has increased. Money transfers can be done electronically
and easily with the help of a bank. It is no longer necessary to cart
bushels of money in a briefcase to some remote island.

Joel Slemrod, a tax economist at the University of Michigan Business
School, Ann Arbor, sees tax havens as "clearly a bad thing." They
enable many small island nations to "commercialize" their sovereignty
at the expense of mostly industrial nations, he says. Tax havens have
given tiny nations a lucrative job-creating business. The Cayman
Islands, for instance, has 5,400 financial-services employees.





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