Will Obama Shut Down Tax Havens for Americans?

What follows is an excerpt from our friend and long time associate, Vernon Jacobs' newsletter, The International Wealth Protection Monitor

This makes interesting reading in the context of the pending Obama administration and what legislation the new president might support concerning offshore tax havens, given his stated positions opposing tax havens.

Vern reviews the political roadblocks to Obama's previously stated radical campaign proposals and suggests what may happen when practical tax and business factors come into play, especially in light of the current economic crisis. Bob Bauman JD.

Vernon Jacobs, CPA writes:

The real question is not whether Obama wants to shut off the opportunity for Americans to avoid, defer or evade taxes through the use of offshore tax havens, but whether he will be able to do so.

The conventional wisdom is that 1) with a Democratic Congress, he will be able to pass any tax laws or similar regulations that he wants an; 2) because of his substantial win over McCain, he will be perceived by the Congress as having a voter mandate to implement his campaign promises.

One of his stated goals is to eliminate tax deferral on the foreign source business profits of foreign subsidiaries of U.S. companies. But that tax deferral is one of the few ways in which U.S. multi-national companies can compete in the world market place where their competitors are subject to much lower tax rates and where they are only taxed on income in the territory where they are based.

Radical Attack

Obama will be attacking ALL of the largest and wealthiest corporations in the U.S., if not in the world.

Will they stand by and do nothing? Hardly. At a minimum, they will impose huge pressure on the members of Congress to resist such a stupid move. At the worst, many of them will find ways to either move their operations to another country or to even divest themselves of their foreign subsidiaries to their shareholders. That is what has been happening lately in the United Kingdom and it can happen here, even despite the tax rules that attempt to restrict corporate expatriation (also known as "inversion").

World Tax Collector

Another of Obama's goals is to somehow force sovereign nations to become de facto tax collectors for the United States and the European Union by imposing tax transparency on low or zero tax countries.

But just as water flows to the lowest point, money tends to move to the place where the after-tax returns are best. When all other factors are equal, that means money will move to tax havens. Some cynics have argued that many tax havens exist and will continue to exist so that corrupt U.S. politicians and the CIA will have a place to hide their ill gotten gains.

Tax Havens Role

But many tax havens mostly exist and prosper because low tax rates or a zero income tax is a way to compete for businesses that produce jobs. Without that form of competition, some of the small island nations will become dependent territories.

Even if the zero tax countries are somehow put out of business by the high tax cartel, the money will move to the lowest of the low tax countries such as Ireland or Barbados or Hong Kong which are not currently perceived as tax havens. Many of the former states of the Soviet Union are now low tax countries with a flat tax and a territorial tax system.

Educated Opinion

Will President Obama and the EU be able to force all those countries to help the U.S. tax collectors?

It's just my humble opinion, but I doubt that will happen. I think his stated goal to shut down the tax havens actually will become little more than another failed campaign promise.

Let's hope Vern Jacobs is correct. We may know soon enough.

* While you can there still are many legal ways to bank and save taxes offshore; I tell you Where To Stash Your Cash: Click Here.  And if you're interested in Switzerland, Click here for Swiss Money Secrets.

Comments

[Andrea Puida]

I believe American Corporation should be obligated to hire Americans first. It's really sad that these companies lack the pride of being able to say "We are an American company who will hire the people of America for all the position we have avaiable to support the Americans of our country and to support the American dream"
I really do wish to hear a American on the phone when I have a problem with my computer or when I need customer service. I really do want to see Made In America on my merchandise, with much pride I will purchase that Item over another product that is made in China. It's ashame that it's not easy to do now but I look forward for that day to happen.
What is wrong with "These Executives" of these large Corportation. They need to step down and take a look of how their actions are hurting the American people.