Gimme Shelter (From the Tax Man): Disappearing Money and Opportunistic Candidates

Secrecy is its calling card. Tax havens, or locales amenable to tax dodging, whether in the Caribbean, Central America, Switzerland (still the world’s top location for financial secrecy), or for that matter the state of Delaware, exist to circumvent tax laws. Period. And these operations are so shady that even the functionaries working in the shadows to establish such secret accounts are barely aware of exactly who owns them, where the money came from, or where it’s going. For regulators, prosecutors, and tax collectors, the opacity is far worse.

You don’t necessarily have to be rich or powerful to access the services of such offshore firms and banks, but it helps. Some havens take anyone ready to put up a minimum of $25,000, while others demand staggering sums. Western Samoa, for instance, requires a cool $10 million to get started.

The most alarming aspect of the Panama Papers revelations was not MF’s clientele or even its secretive practices, but that what it does is completely “legal.” Nor was this the first such disclosure. In November 2014, for instance, the “Luxleaks” scandal involving a whole “menagerie of Luxembourg-based tax schemes,” as the Guardian put it, was disclosed by two whistleblowers from the accounting firm PricewaterhouseCoopers. (Luxembourg is a major European tax haven.) Citigroup, Deutsche Bank, Facebook, HSBC, JPMorgan Chase, and Microsoft were on the list of its more than 350 multinational “tax avoiders.”

Avoiding vs. Evading Taxes and Corporate Inversions

Avoiding and evading taxes are technically considered different kinds of acts, the former being legal in the U.S., the latter not. According to the Internal Revenue Service, “Taxpayers have the right to reduce, avoid, or minimize their taxes by legitimate means.” Tax evasion, on the other hand, involves an “act to evade or defeat a tax, or payment of tax” by “deceit, subterfuge, camouflage, concealment, attempts to color or obscure events, or make things seem other than they are.”

The line between the two is obviously thin and vague, but both practices result in the same thing: paying fewer taxes or hiding money.

The subject of tax avoidance and evasion has generally gotten little traction on the campaign trail in election 2016, the exception being corporate “inversions.” These happen when, for example, an American company merges with a foreign one in a tax haven, and so gets a lower tax rate by re-incorporating (filling out some paperwork) there. This, too, is “legal,” although it represents the purest form of corporate tax evasion.  Perhaps you won’t be surprised to learn that the practice began in Panama about 30 years ago.

In 2014, companies with household names like Apple, Microsoft, Pfizer, and General Electric avoided paying a collective $90 billion in taxes through inversion strategies. Apple led that list, holding $181.1 billion offshore.  That’s a lot of iPhone sales.

The Leading Candidates and Hidden Money

Tax havens are, in essence, perfectly “legal” criminal facilities designed to steal money from the rest of us. The two leading candidates in this election season, however, aren’t talking about closing down tax havens for good (which would piss off lots of rich people, banks, drug cartels, and terrorists). They are instead focused on getting companies to voluntarily repatriate, or return, profits made abroad for taxation purposes or on closing tax “loopholes” that allow money to disappear.  Neither, however, offers much detail as to what that means. 

Both do share one thing, however, when it comes to tax havens: Hillary Clinton and Donald Trump have companies registered at the same address (also “shared” by 285,000 other companies) in Wilmington, Delaware. In other words, they make use of the “Delaware loophole,” which allows for the legal shifting of earnings from elsewhere in the country to the ultimate tax haven state in the U.S.  Neither, as Rupert Neate of the Guardian has written, has been willing to offer any explanation for this. That’s the political beauty of loopholes: closing one is different from eradicating an entire practice but suffices as a promise.

Hillary

Hillary has gone after tax havens before. In 2004, as a New York senator, she vowed to close tax loopholes for “people who create a mailbox, or a drop, or send one person to sit on the beach in some island paradise and claim that it is their offshore headquarters.”  She introduced no bills to do so, however.

She has spoken out against corporate tax inversions, too. She wants Congress to prevent them by imposing what she calls a “commonsense 50%” threshold on them; in other words, as long as a company keeps at least half of its operations in this country, it would be considered a U.S. company for tax purposes, no matter the inversions. She also has favored an “exit tax” to ensure that multinationals pay a “fair” share of U.S. taxes owed on earnings stored overseas. Both of these suggestions would put some modest limits on offshore tax dodging (after the fact), but not come within a country mile of banning it.