Happy Thanksgiving

Sorry I’ve not been blogging much recently.  Many other pressing things have come up.  So to give you a worthy blog to read over the holidays, below is one by my friend Nicole Tichon, executive director of the Tax Justice Network USA.   This blog ran recently in The Huffington Post.  Enjoy.

Happy Thanksgiving!

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The Huffington Post
November 20, 2012

Free Enterprise is Not Free
By Nicole Tichon

There's been a lot of talk about what we can't afford as a nation and who is getting what "gift" or which free ride. When President Obama recently met with CEOs and chatted with Jamie Dimon over the weekend, we should hope he issued a stern warning that the tax avoidance games (legally) played by big banks and multinational corporations are on the chopping block. When it comes to cutting, eliminating and restructuring things, these loopholes should be top-of-mind for all leaders.

For all the talk of the importance of giving corporations "certainty" to make sure they can remain "competitive," we aren't hearing a whole lot about what's being asked of them. After all, free enterprise is not free.

In the coming days, weeks and months there will be many pivotal conversations about how and where to tax corporations and how to reform our corporate tax system. Don't believe the hype that these issues are too complicated. They're not. If you paid more than 1.9 percent in income tax, you paid a higher rate than Apple. Period.

Collecting taxes on profits shifted offshore by corporations that benefit from government tax credits, tax loopholes, huge government contracts and, yes, doing business here should be like collecting low-hanging fruit. Both political parties need to work together to combat the damaging effects of the offshoring of jobs and revenues. Our current system drains our treasury. It threatens basic services and national security.

Citizens get it. According to a new poll by Hart Research on behalf of Americans for Tax Fairness, "84 percent of voters approve of increasing taxes on the profits American corporations make

These issues were put on the national stage because of a presidential candidate who uses offshore accounts, and by the reporting of tax shell games by Apple, Google, Starbucks, Microsoft and General Electric. In the U.S., Microsoft and Hewlett-Packard have been investigated, with troubling results. A Senate investigation found that from 2009 to 2011, "Microsoft shifted $21 billion offshore, almost half its U.S. retail sales revenue, saving up to $4.5 billion in taxes on goods sold in the United States." Now, in the U.K., Amazon, Starbucks and Google are being questioned by the government for shady tax practices.

The Obama administration and Congress need to correct a flawed system that has fostered legal tax avoidance and thus raised the ire of progressives, such as Sen. Carl Levin (D-Mich.), and conservatives, such as Senator Tom Coburn (R-Okla), alike.

Who can defend companies making record profits skipping out on their tax bills? Who can honestly keep holding up the disingenuous argument that multinational corporations in the U.S. pay the highest rate in the world when the fact is that it just ain't so?

Consider: According to the Congressional Budget Office, the average tax rate that corporations pay on domestic profits in the U.S. is about 12 percent. In fact, the current system is basically a yearly backdoor bailout: "a system that barely taxes them as it is."

Moving forward, we'll hear lofty-sounding ideas about "broadening the base, lowering the rates, closing loopholes," and more technical ideas about moving to a "territorial system" of taxation.

Let's start with the former: The loopholes that need to be closed are those that enable the largest corporations to pay extraordinarily low tax rates or no tax at all by shifting profits, patents and headquarters offshore. These cost us $100 billion per year. Let's talk about the multinational corporate tax base and those low or non-existent rates. If you're thinking that a corporation can't get lower than a 0-percent tax rate, think again.

With respect to the latter, lawmakers are in danger of making a bad situation worse. A "territorial system" would be tantamount to a permanent tax holiday for corporations. Under this system, companies would not have to pay U.S. federal income taxes on foreign earnings when they bring the profits back to the United States. These "foreign" earnings include the money that companies such as Google pay themselves for their own products or patents conveniently parked offshore. The sieve that is our system of taxing multinational corporations would become a gaping gulf into which even more revenues and jobs will fall.

Powerful special interests and CEOs have already lined up their money, their lobbyists and their media machine to try to lull lawmakers and citizens into believing that they're the grownups at the table and know what's best for you. They don't. Instead, they benefit from a system rigged for their interests. And now they want more, at your expense. According to the Institute for Policy Studies, 63 "Fix the Debt" companies that are publicly held stand to gain as much as $134 billion in windfalls if Congress approves one of their main proposals: a territorial tax system.

This is a critical time, and decisions made about taxation will have long-term and profound effects. It's not fair to continue to ask taxpayers and those who have paid into the system to sacrifice, while failing to collect existing tax revenue from corporations making record profits.

Free enterprise is not free. The nation's budget situation may be reason enough for some to close these loopholes, but the ramifications go much further. American corporations that benefit from the workforce, infrastructure, courts, markets and national security of the United States of America should not be allowed to avoid their responsibilities. In other words, passable roads, clean water, research grants and our national defense are not free.

Former U.S.-based corporations that have benefited from U.S. government research and development dollars and do the majority of their business in the U.S. should not be allowed to simply call a post office box in the Cayman Islands or an empty law office in Switzerland their "headquarters" to pass their tax burden to all other taxpayers.

Waxing on about loopholes without actually showing any real plan to close the most egregious kind is not leadership. False bravado about tough choices and hand-wringing about sacrifice regarding the debt by those who are driving the debt is patently ridiculous.

There's real money in cracking down on offshore tax dodging. Congress needs to close these loopholes and make large corporations pay taxes in the same country that provides them with the benefits and legal protections that make it so profitable to operate in the United States in the first place.

Follow Nicole Tichon on Twitter: www.twitter.com/TaxJusticeUSA

http://www.huffingtonpost.com/nicole-tichon/free-enterprise-is-not-free_b_2160577.html

Studies Reveal That at Least $21 Trillion is Hidden in Secret Tax Havens, Gap Between Rich and Poor Growing

(The auther of this report, James Henry, will be on my radio show just after 5:40ET today. The streaming audio can be found here.)

Tax Justice Network
July 22, 2012

At least $21 trillion of unreported private financial wealth was owned by wealthy individuals via tax havens at the end of 2010. This sum is equivalent to the size of the United States and Japanese economies combined. The research comes amid growing concerns about the enormous gulf between rich and poor in countries around the globe.

There may be as much as $32 trillion of hidden financial assets held offshore by high net worth individuals (HNWIs), according to our report The Price of Offshore Revisited, which is thought to be the most detailed and rigorous study ever made of financial assets held in offshore financial centres and secrecy structures.

Read the full report here.

James S. Henry, TJN Senior Adviser and main researcher for The Price of Offshore Revisited, said: “This new report focuses our attention on a huge 'black hole' in the world economy that has never before been measured – private offshore wealth, and the vast amounts of untaxed income that it produces. This at a time when governments around the world are starved for resources, and we are more conscious than ever of the costs of economic inequality.”

Other Key Findings:

· At the end of 2010 the Top 50 private banks alone collectively managed more than $12.1 trillion in cross-border invested assets for private clients, including their trusts and foundations. This is up from $5.4 trillion in 2005, representing an average annual growth rate of more than 16%.

· The three private banks receiving the most assets offshore on behalf of the global super-rich are UBS, Credit Suisse and Goldman Sachs. The top ten banks commanded more than half the top fifty’s asset total – an increased share since 2005.

· Fewer than 10 million members of the global super-rich have amassed a $21 trillion offshore fortune is. Of these, less than 100,000 people worldwide own $9.8 trillion of wealth held offshore.

· If this unreported $21-32 trillion, conservatively estimated, earned a modest rate of return of just 3%, and that income was taxed at just 30%, this would have generated income tax revenues of between $190-280 bn – roughly twice the amount OECD countries spend on all overseas development assistance around the world. Inheritance, capital gains and other taxes would boost this figure considerably.

· For our focus subgroup of 139 mostly low-middle income countries, traditional data shows they had aggregate external debts of $4.1 tn at the end of 2010. But take their foreign reserves and unrecorded offshore private wealth into account, and the picture flips into reverse: they have aggregate net debts of minus US$10.1-13.1 tn. In other words, these countries are big net creditors, not debtors. Unfortunately, their assets are held by a small number of wealthy individuals, while their debts are shouldered by their ordinary people through their governments.

We consider these numbers to be conservative. This is only financial wealth and excludes a welter of real estate, yachts and other non-financial assets owned via offshore structures.

Nicole Tichon, director of Tax Justice Network USA, said, "Recent investigations into the world's largest banks have shown that financial secrecy is the means to bad ends. It protects criminals of all stripes. And the loss of tax revenues to both developed and developing countries has left widespread job loss, budget cuts and basic services in its wake."

Henry draws on data from the World Bank, the IMF, the United Nations, central banks, the Bank for International Settlements, and national treasuries, and triangulates his results against data reflecting demand for reserve currency and gold, and data on offshore private banking studies by consulting firms and others.

Accompanying this research is another study by TJN, entitled Inequality: You Don’t Know the Half of It, which demonstrates that all studies of economic inequality to date have failed to account properly for this missing wealth. It concludes that inequality is far worse than we think.

Read the full report here.

TJN interviewed eight of the world’s most respected economists specializing in economic inequality. They all confirmed a huge under-reporting problem in this area.

TJN’s research explains that if an asset is hidden in an offshore bank account, trust or company, and the ultimate owner or beneficiary of the income or capital therefore cannot be identified, then this asset and the income it produces cannot be counted in inequality statistics.

Nicholas Shaxson, author of the book Treasure Islands: Tax Havens and the Men Who Stole The World, said, "A pinstripe infrastructure of accountants, lawyers and financial institutions has painstakingly put together a global offshore system for hiding a large chunk of the world’s wealth and income from view. They have been spectacularly successful. Now that we can at last see the true scale of this monster, we will have to get used to the idea that inequality is much worse than we ever thought."

John Christensen, director of the Tax Justice Network, said, "Inequality has reached epic proportions. It threatens economic and social stability – but none of the big institutions such as the IMF, the World Bank, the Bank of England or the Fed, with their many thousands of highly paid economists – have ever taken useful and serious steps to measure all this offshore wealth. Without this, we could never understand the true, gargantuan scale of the inequality challenge we face. This is an astonishing abdication of responsibility on their part."

Although some inequality studies try to compensate for the missing offshore assets, all experts interviewed for this TJN paper, agreed that no study comes even close to compensating sufficiently.

The Tax Justice Network promotes transparency in international finance and opposes secrecy. We support a level playing field on tax and we oppose loopholes and distortions in tax and regulation, and the abuses that flow from them. We promote tax compliance and we oppose tax evasion, tax avoidance, and all the mechanisms that enable owners and controllers of wealth to escape their responsibilities to the societies on which they and their wealth depend.

Visit the TJN website here.

Visit the TJN-USA website here.

Read TJN-USA's latest blog on the impact of offshoring of revenues here.