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Tuesday, July 13, 2004

Tax Havens and the Deficit

The biggest single item in Kerry's plan to cut the deficit is "cutting corporate welfare" to save $65 billion a year. My initial reaction was skepticism: politicians always talk about reducing "waste, fraud, and abuse." But after hunting around on the web for a while, I'm a believer. The invaluable Center on Budget and Policy Priorities says:

* Treasury Department figures show that actual corporate income tax revenues fell to $132 billion in 2003, down 36 percent from $207 billion in 2000.

* As a result of these low levels, corporate revenues in 2003 represented only 1.2 percent of the Gross Domestic Product (the basic measure of the size of the economy), the lowest level since 1983, the year in which corporate receipts plummeted to levels last seen in the 1930s.

So there seem to be plenty of untaxed profits out there.

Cracking down on corporate welfare and tax havens has been receiving much less attention recently than it did last year, when Congress held hearings on the issue. Kerry too seems to be talking about this much less now than he was during the primaries, perhaps because he's trying to move towards the center. But it seems to me that reducing tax evasion and avoidance is a perfectly centrist issue, and populist too. And it could plausibly bring in fairly large amounts of revenue, making it a great answer to the question, "so how are you going to pay for your programs, and still reduce the deficit?"

Even better, there are lots of great stories. For example, did you know that over a million Americans have credit/debit cards that allow convenient access to bank accounts in tax havens like the Cayman Islands? David Cay Johnston, the NY Times crack tax fraud reporter wrote in 2002,

These people --� most believed to have incomes that would put them among the top 1 percent of taxpayers --� "are using offshore cards to pay for living expenses," the I.R.S. said, from groceries to cars to college tuition for their children. Offshore accounts would be of little use to people whose wages are reported to the I.R.S. by their employers. But entertainers, business owners, investors and others who control what is reported to the I.R.S. can use offshore accounts to hide fees, profits, dividends, interest and capital gains.

And these services remain readily available. Here's a company that advertises "Tired of government watching your transactions and profits? Ekasse uses offshore structures and coded bank accounts solutions to avoid taxation and provide complete privacy and anonymity." If you prefer a bigger name, Barclays will help you set up an account in one of the Channel Islands.


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