Sky high gasoline and oil prices, thousands of home mortgage foreclosures daily, U.S. troops dying in two foreign wars -- all this driving Americans to distraction.
Meanwhile, up in the rarefied atmosphere of Capitol Hill, the U.S. Senate is engaged in a phony war on offshore tax havens. Day after day eager Senators demagogically play to the news media gallery with bombastic and false statements about billions in lost taxes offshore.
Last week it was Creeping Levinism (D-Mich) attacking Switzerland and Liechtenstein, stupidly arguing that all Americans with offshore bank accounts (which are fully legal) should be treated as suspect tax evaders.
This week it's that dynamic U.S. Senate Finance Committee duo of Baucus (D-Mont) and Grassley (R-Iowa) dumping all over the Cayman Islands, claiming that any American corporation with a subsidiary company offshore (which is fully legal) should be treated as suspect tax dodgers.
The Baucus/Grassley show was based on a report the two senatorial pals ordered from the Government Accountability Office, the congressional watchdog agency, to investigate a five story building (Ugland House) in the Caymans that is listed as the business address for corporate subsidiaries of more than 18,500 U.S. companies, a number that has nearly doubled in the past four years.
About half of the companies with addresses at the Ugland House, located in George Town, the capital of the British overseas territory, are American. The principal tenant of the building is the well respected international law firm of Maples and Calder, which performs incorporations for global clients.
Sinister Building
Possibly trying to keep a straight face, Senator Baucus said that "this building in the Caymans" is "one of the most likely places shady tax transactions could be sheltered. If American companies are setting up shop at the beach just to avoid their tax obligations, we can't keep our heads in the sand. We must make sure honest American taxpayers are not footing the bill for corporations that aren't paying their fair share." Bravo, Senator! Go get 'em!
But please note the false premise of this Baucus syllogism, (a deductive scheme of formal argument, I was taught at Georgetown U., consisting of a major and a minor premise and a conclusion). His false premise is that "if" a U.S. company has an address at this building, on that grounds alone, the company automatically is suspect of tax evasion, a totally false conclusion.
When I was in politics this sort of exercise was called setting up a "straw man" -- defining an object on your own terms, then attacking it for fun and political profit.
Offshore Tax Law 101
The reason American corporations form offshore companies is to take advantage of U.S. tax laws that allow tax credits and other tax breaks for earnings that are gained offshore and kept there. This is done to avoid legally the onerous U.S. corporate tax rate of 35% -- one of the highest in the world -- and a major reason why U.S. companies find it difficult to compete globally. By the way, senators, that high tax means lost American jobs and fewer taxes paid by U.S. workers.
U.S. companies also use offshore tax havens like the Cayman Islands to reduce their foreign tax liability. Example, an American company with operations in Japan can create an affiliate in the Cayman Islands and structure it so that the affiliate is earning interest, which is tax-deductible in Japan.
Much of this anti-tax haven bologna consist of an escalating numbers game of how much annual tax loss the IRS suffers because of alleged offshore tax evasion.
Senator Carl Levin, in recent years, has upped the fictitious lost tax number he invented from $50 billion to $100 billion. But at the Finance Committee hearing, Senator Baucus blew the roof off, claiming that the Senate must "find legislative solutions to pressure the IRS and better enable them to collect on the nearly $345 billion annually of legally owed but unpaid taxes," according to Tax News.com (Do I hear any Senator willing to bid a headline grabbing $1 trillion?)
Experts Disagree
Several economists and tax experts dispute even the $100 billion number. They say a surge in the number of companies based in the Cayman Islands does not correlate with lost taxes. By comparison, they point out that America itself is one of the largest tax havens in the world, (for foreigners, but not for Americans), with more than 850,000 companies registered in the State of Delaware alone, including one Wilmington building where more than 200,000 companies have an address. (Better rush right up to Wilmington and investigate that spooky building, senators).
Another reason companies invest in a tax haven is to defer legally U.S. taxation of foreign income. Unlike many countries, including the European Union, America taxes income earned both at home and abroad. But if this money is reinvested abroad, the tax is deferred. (Thus the need for offshore subsidiaries). The lost tax revenue from the legally deferral of income from American investments abroad totaled $11.9 billion last year and is expected to reach $12.8 billion by the end of this year, according to estimates from the Office of Management and Budget. By 2010, that number will reach $14.6 billion, OMB estimates.
The Ruse that Jack Built
Predictably as clock work, Baucus/Grassley called on good old Jack Blum, a lawyer at the Washington D.C. law firm Baker & Hostetler, paid IRS "consultant" and self-appointed specialist in innuendo who for years has been hauled out to repeat his tired spiel for nearly every congressional anti-offshore tax hearing.
Not content with phony attacks on the Cayman Islands, professional witness Blum also went after three other Caribbean island tax havens, the British Virgin Islands (BVI), Nevis, and Belize.
As if it were some sort of crime, Blum intoned: "The BVI has more than 500,000 shell companies." Not content with this implied smear he added: "It is important to understand that the structures are mere pieces of paper with no commercial reality," while insisting that in his narrow, biased opinion, "offshore tax evasion is a massive threat to the U.S. tax system."
No doubt Blum knows better, but tax truth does not fit his canned agenda. These "mere pieces of paper" are incorporation documents that allow offshore companies to qualify for legal tax breaks worth billions annually which the U.S. Internal Revenue Code authorizes (see above) -- and which the Congress could change if they really wanted to.
Fighting the Good Fight
Damned, if I don't get tired having to do the job of a lazy, and no doubt, biased, "news" media that doesn't seem to care one bit about the truth about offshore tax havens.
"Tax havens don't necessarily detract from real investment," a professor at Harvard Business School, Mihir Desai, says. "It can be actually beneficial to tax mobile capital less than immobile capital. Otherwise the mobile capital will just go elsewhere. I would imagine that the presence of tax havens may well cost tax revenue, but that does not necessarily mean it is bad to have them around," Mr. Desai said. "Tax havens can also facilitate investment by allowing investors to reduce their tax burdens."
But the politicians in Congress in both parties are far more concerned about getting headlines and their own re-election than they are about helping American business or American taxpayers.
Good Old Tom Said It
And there is no place in the world where there is more natural manure (or tyrants) to be found than in Washington, D.C. -- especially on Capitol Hill.
* While you still can, discover the legal ways to bank and save taxes offshore, including the Cayman Islands; I tell you Where To Stash Your Cash: Click Here. * If you're interested in Switzerland, Click here for Swiss Money Secrets.
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