Skip to: Content
Skip to: Site Navigation
Skip to: Search

Tax havens in U.S. cross hairs

With $345 billion in lost revenue, tolerance for off-shore avoidance fades.

By David R. Francis / June 9, 2008

When Barack Obama or John McCain enter the White House next January, either one will face a crucial problem: How to raise revenues or cut spending to shrink the massive federal budget deficit.

Skip to next paragraph

Tax economist Martin Sullivan suspects that Senator Obama will go for the "low-hanging fruit" first – that is, chasing down wealthy tax evaders, individual and corporate. Obama signed on to the Tax Haven Abuse Act, a bill introduced in 2007 by Sens. Carl Levin (D) of Michigan and Norm Coleman (R) of Minnesota.

Senator Levin figures that secretive offshore tax havens cost the federal government $100 billion in lost tax revenues each year. That's part of the total "tax gap" – the amount of unpaid taxes owed by individuals, corporations, and other organizations – estimated by the Internal Revenue Service (IRS) to be $345 billion.

As Levin sees it, these tax evaders are "willing to rob Uncle Sam and offload their tax burden onto the backs of honest taxpayers." His bill will be reintroduced next year. If the nation's economic woes continue, lawmakers will probably have a more difficult time opposing legislation that could raise billions by thwarting efforts that amount to illegal tax evasion.

Tax havens have existed for many decades. That's because some commercial banks have effectively blocked legislation to curtail their activities, explains Lucy Komisar, co-chair of the US wing of the Tax Justice Network, a London-based group. Banks, she charges, make a "lot of money" from placing private financial accounts in such places as the Cayman Islands, Bermuda, the Isle of Man, etc. The business has been growing for years.

But the tolerance toward tax havens on both sides of the Atlantic appears to be weakening. In Europe, tax havens were brought into the public eye this year by a juicy scandal involving secret bank accounts in Liechtenstein. A multimillion dollar sum was paid to an informer who provided hundreds of names behind tax-dodging accounts held by German business tycoons, about 100 American taxpayers, and tax cheats from other nations.