Cracking Down On Tax Havens

A couple days old, but this is very interesting.

In the latest setback to Switzerland’s tradition of banking secrecy, UBS, one of the nation’s largest banks, agreed on Wednesday to turn over information on more than 4,400 American clients suspected by the Internal Revenue Service of using Swiss accounts for tax evasion.

The agreement is likely to unnerve American customers of UBS who do not know if their names will be divulged, and could deter others from opening Swiss accounts in the future.

Whether the deal will change the Swiss banking industry’s culture of secrecy remains to be seen. Smaller Swiss banks say they are confident that they can blunt its effects and continue to profit by finding new, more elaborate ways to protect the privacy of clients. But American authorities have made clear that their pursuit of tax evaders will not stop at UBS.

I would hope it does unnerve UBS customers from opening Swiss bank accounts, considering that those accounts violate US law. I would say that rich people ought to think twice before starting their own offshore tax havens.

By the way, if the President wants to recapture some of his liberal base, he could do worse than emphasizing this outcome. People are justifiably angry that the banks appear to have gotten away with almost destroying the global economy and taking hundreds of billions from the US Treasury. I know that class warfare is messy and all, but showing that a Democratic government does their job and ferrets out rich tax cheats would at least play against this hardening belief that all politicians funnel money to the wealthy. Foreign lobbyists are trying hard to get the DoJ to back off, but if the Administration remains vigilant in the face of that pressure, they can really announce this as a victory. I would like to see conservatives argue in favor of the uber-rich stashing away their cash in offshore tax havens. Really, go ahead.

...Apparently Switzerland knows when to get out of the tax cheat business: they're selling their stake in UBS.

Bring On Johnny Law And Break Up The Banks

Many of us have been insistent on the message that, when it comes to the banking industry, if it's too big to fail, it's too big to exist. Yesterday, the Obama Administration at least hinted at using antitrust law to ensure such a scenario will not happen again.

President Obama’s top antitrust official this week plans to restore an aggressive enforcement policy against corporations that use their market dominance to elbow out competitors or to keep them from gaining market share.

The new enforcement policy would reverse the Bush administration’s approach, which strongly favored defendants against antitrust claims. It would restore a policy that led to the landmark antitrust lawsuits against Microsoft and Intel in the 1990s [...]

Ms. Varney is expected to say that the administration rejects the impulse to go easy on antitrust enforcement during weak economic times.

She will assert instead that severe recessions can provide dangerous incentives for large and dominating companies to engage in predatory behavior that harms consumers and weakens competition. The announcement is aimed at making sure that no court or party to a lawsuit can cite the Bush administration policy as the government’s official view in any pending cases [...]

Ms. Varney is expected to say that the Obama administration will be guided by the view that it was a major mistake during the outset of the Great Depression to relax antitrust enforcement, only to try to catch up and become more vigorous later. She will say the mistake enabled many large companies to engage in pricing, wage and collusive practices that harmed consumers and took years to reverse.

While Ms. Varney is not expected to mention any specific companies or industries vulnerable under the new policy, those who have talked to her about the speech say she is aiming at agriculture, energy, health care, technology and telecommunications companies. She may also be reviewing the conduct of some in the financial services industry, which is now undergoing a wave of consolidation as a result of the financial crisis.

Those last two grafs are the key ones, although I would welcome a return to Clinton-era antitrust enforcement in all aspects of business - the Bush Administration's Justice Department did not file a single case using anti-monopoly statutes.

Simon Johnson, who has long advocated for using antitrust law to break up the banks, sees hope in this new outlook. Since the beginning of the financial meltdown, the industry has consolidated massively, often at the request of the federal government. As a result, consumers are seeing higher charges in bank fees, and considering that banks need profit to negate their capital shortfalls, I expect that to only grow. Antitrust law has a role to play here, though obviously they will run into tension from the Treasury Department. Not to mention wealthy Obama donors, who have brought their opinions to bear on a separate debate, the proposed closure of offshore tax havens:

A report by the General Accounting Office found that 83 of the largest 100 publicly traded US companies had subsidiaries in tax havens or "financial privacy" jurisdictions, as do 63 of the largest US federal contractors (PDF).

Joe Conason wrote earlier this year about the tax havens of bailed out banks around the world. "Don't expect to find out from Fox News Channel or the New York Post, because News Corp. has its own constellation of strange subsidiaries, including 33 in the Caymans alone," he notes.

But back to the class war business. Who is the anonymous "hedge fund" manager sending ominous warnings to Obama in the press? It seems to be the all the rage among rich donors these days -- Orin Kramer has certainly done it before, as has Pimco's Bill Gross, and of course poor little rich girl Penny Pritzker.

Nobody should really be surprised that rich people don't want to pay their taxes. I guess the bigger question is: why aren't there more cosponsors in the House and Senate?

We have very powerful interests, both rich individuals and corporations, asserting their right to break the law, and imploring the Obama Administration to allow them to continue to do so. We'll see where they come down.

Squaring Tax Haven Rhetoric With The Policy

Huge surprise here - the business lobby wants to keep ripping off the US Treasury by hiding their tax obligations in secret bank accounts. Why wouldn't they? Despite the chronic bleatings about America's high corporate tax rate, corporations only pay a scant 2.3% on their massive profits. That's hundreds of billions of dollars essentially taken from the public, that could go toward health care or jump-starting the new energy economy. The Administration is signaling that this crackdown is a "down-payment on the larger tax reform we need to make our tax system simpler and fairer and more efficient for individuals and corporations." I think the exchange of a lower tax rate with far fewer loopholes is one I would happily make.

But David Sirota is right - you simply cannot advocate for ending corporate tax havens while pushing a free trade agreement with Panama, one of the major remaining tax havens out there. Fortunately, that dichotomy has been brought to light, causing a move to get Panama to comply with the new law:

That's right, after the entire Washington press corps and all of cable news did their best stenography act and refused to ask a single serious question about the blatant hypocrisy in President Obama's "we're getting tough on corporate tax havens" announcement yesterday, ABC News' Jake Tapper demanded - and actually got - some answers at today's White House press briefing. Specifically, he asked the White House how it can be claiming to be serious about cracking down on corporate tax havens while simultaneously pushing a Panama Free Trade Agreement that would reward and legitimize the practices of one of the worst tax havens on the planet.

White House press secretary Robert Gibbs, clearly conditioned after years of D.C. press work to be unprepared for any kind of substantive question, had absolutely no answer for Tapper, except to promise him that someone from the U.S. Trade Representative's office would get him something. Tapper stuck to the story, and eventually broke some real news when he spoke with the U.S. Trade Representatives' office:

Carol Guthrie, a spokeswoman for US Trade Representative Ron Kirk, tells ABC News that "Ambassador Kirk has been always been very clear that it will be necessary to address outstanding issues on labor and tax policies, and we continue to work on those tax issues. Our refusal to tolerate tax havens is precisely why we're working with the Panamanian government to address concerns regarding its international tax policies. We can work to improve international tax practices and open markets for entrepreneurs and workers at the same time."

Guthrie, of course, is bullshitting when she says "Kirk has been always been very clear that it will be necessary to address outstanding issues on labor and tax policies." All he's been clear on is that he wants the Panama deal passed. But now forced into a corner, he's stated that the "precise" reason the administration hasn't introduced the Panama pact in Congress is its attempt to "work with the Panamanian government to address concerns regarding its international tax policies." That's actual, genuine and important news - a statement far clearer and more precise than any of the general bromides of the past.

It seems to me that the Obama Administration has the right theoretical stance but often backslides on the details. That's where a vibrant progressive movement comes in. Incidentally, Sirota tweeted this question to Tapper.

An End To Tax Havens

I guess the President met with Joe Stiglitz and Paul Krugman last week. Ultimately, these one-off meetings mean little in the context of the larger discussion inside the White House, which appears dominated by the axis of Summers and Geithner. But notably, the President came out the very next week with a plan to put a halt to offshore tax havens.

President Obama will present a set of proposals on Monday aimed at changing international tax policy, calling for the elimination of benefits for companies and wealthy individuals that harbor their cash in offshore accounts.

The president and Treasury Secretary Timothy F. Geithner will announce their plans during a late-morning appearance at the White House. The proposed overhaul in the tax code, which will be fully unveiled in the administration’s budget later this week, could help raise $210 billion in revenues over the next 10 years.

One of the key proposed changes would restrict companies from deferring the payment of taxes on profits earned overseas. Administration officials said the plan also would keep firms from taking deductions against their taxes by inflating the amount of foreign taxes they paid.

Mr. Obama raised the idea frequently during his presidential campaign. In a speech to Congress in February, as he outlined his priorities for the year, he pledged to make the tax code more equitable by “finally ending the tax breaks for corporations that ship our jobs overseas.”

We have heard the "end tax breaks for companies that ship jobs overseas" line since the Kerry campaign. But what we're really talking about here goes back even further than that. The Obama campaign wants companies to pay their taxes under the law. That's pretty much it. As quoted in the press release put out by the Administration, corporations have a 2.3% effective tax rate on their foreign earnings. That's absurd and wrong. The use of tax havens in the Cayman Islands and elsewhere suck wealth out of the country and give corporate interests a free ride to use the commons at virtually no cost. The tax breaks for shipping jobs overseas is only a part of this plan. Here's President Obama with more.

The way we make our businesses competitive is not to reward American companies operating overseas with a roughly 2 percent tax rate on foreign profits; a rate that costs -- that costs taxpayers tens of billions of dollars a year. The way to make American businesses competitive is not to let some citizens and businesses dodge their responsibilities while ordinary Americans pick up the slack [...]

For years, we've talked about ending tax breaks for companies that ship jobs overseas and giving tax breaks to companies that create jobs here in America. That's what our budget will finally do. We will stop letting American companies that create jobs overseas take deductions on their expenses when they do not pay any American taxes on their profits. And we will use the savings to give tax cuts to companies that are investing in research and development here at home so that we can jump start job creation, foster innovation, and enhance America's competitiveness.

For years, we've talked about shutting down overseas tax havens that let companies set up operations to avoid paying taxes in America. That's what our budget will finally do. On the campaign, I used to talk about the outrage of a building in the Cayman Islands that had over 12,000 business -- businesses claim this building as their headquarters. And I've said before, either this is the largest building in the world or the largest tax scam in the world.

And I think the American people know which it is. It's the kind of tax scam that we need to end. That's why we are closing one of our biggest tax loopholes. It's a loophole that lets subsidiaries of some of our largest companies tell the IRS that they're paying taxes abroad, tell foreign governments that they're paying taxes elsewhere -- and avoid paying taxes anywhere. And closing this single loophole will save taxpayers tens of billions of dollars -- money that can be spent on reinvesting in America -- and it will restore fairness to our tax code by helping ensure that all our citizens and all our companies are paying what they should.

We're talking about what amounts to an illegal fraud of the public commons, to the tune of at least $21 billion dollars annually. Corporations have grown accustomed to it and see it as their birthright. Their sycophants in the media try to turn history on its head and claim that the founding principle of what it means to be an American is to cheat on taxes.

SCARBOROUGH: They tell me though it's all legal - ALL LEGAL.

BURNETT: Of course it is.

SCARBOROUGH: There's a big difference between tax avoidance and being an all out tax cheat.

BURNETT: That's right. Isn't it your obligation in this country - there is a tax code for a reason, to take advantage of every bit of it you can and pay as little as you can.

I'd be fine with lowering the corporate tax rate if I thought corporations actually paid it. But they don't. They "avoid" (not cheat! Don't you dare say cheat!) them and increase the burden on working people. And it's time this stopped. Obviously, the corporate interests who want to maintain the status quo will fight like hell to stop this. Here's Robert Gibbs at his presser today;

Q Okay. And on the announcement he made today about international tax policy, several big corporations are lined up against it, the deferral provision -- Pfizer, Oracle, Microsoft and trade associations like the Chamber of Commerce, Business Roundtable. And I'm just wondering how you think you're going to overcome that opposition and if you think this faces a big fight in Congress.

MR. GIBBS: Well, I don't think change is ever easy and I think whenever you're taking on some bigger interest that mountain gets a little bit steeper.

But the President strongly believes that the policy that he outlined, the steps that we have to take to close tax loopholes and ensure some fairness in this process is the right policy for America and the right policy for American business. By closing these loopholes and replacing these tax advantages with fairness, using a portion of the money that's recouped to make or to fund research and development and experimentation tax credit for the next 10 years is an important investment for American business.

Since 1981 the R&D tax credit has expired on 13 separate occasions. So providing business with some certainty for research and development we think is important. And as the President said throughout the campaign, we have -- our tax code has an incentive that provides -- an incentive that rewards companies that are investing overseas at the expense of investing here in America. We know we're going to take on some tough interests in that, but the President believes this is a fight we should have and one that we can win.

As you can see, corporations would get a permanent R&D tax credit out of this, which would save them billions in the exchange, in effect a bribe that must be offered in exchange for getting them to actually pay their taxes.

I'm glad Obama's making this fight, and when you combine it with his comments on the shrinking of the financial sector, maybe we can say that the Krugman/Stiglitz meeting did the trick.