A tougher stance on tax havens
Wednesday's US-Swiss deal is the latest step in an international crackdown on tax evaders.
A decades-long tolerance of the 90 or so tax havens around the world is giving way to a tougher resolve among major industrial nations to crack down on tax evaders.
The latest move: a new US-Swiss deal, made public Wednesday, to provide the Internal Revenue Service with information on some 4,450 suspect UBS accounts that at one time held a total of $18 billion. (Click here for details in a story by a Monitor contributor by the same name.)
Abroad, Britain, Germany, and France also have been taking a tougher stance against tax havens. Britain, for instance, has been trying to pry open some 5,000 accounts in Liechtenstein owned by British investors with an estimated total of at least $3.3 billion. When the G-20 major industrial nations declared in April that "the era of banking secrecy is over,” they may actually have meant it.
Other moves are under way, including in the United States.
Last year, then Sen. Barack Obama cosponsored the Stop Tax Haven Abuse Act that would crimp opportunities for wealthy tax evaders. The bill has been introduced again this year by Sen. Carl Levin (D) of Michigan and others.
In his 2010 budget, President Obama asked Congress to pay for 800 additional agents, examiners, and lawyers to pursue Americans hiding money overseas to escape taxes.
In March, the IRS began a six-month voluntary disclosure program giving tax evaders the possibility of escaping jail time after paying back taxes and a major penalty. Clearly frightened by the publicity over the UBS case (including UBS disclosure earlier this year of more than 250 American clients as part of a deferred prosecution agreement with the Justice Department), “unprecedented” hundreds of well-to-do citizens have sought to
join the amnesty program, Internal Revenue Service Commissioner Douglas
Shulman said in a Washington press conference Aug. 19.
“The clock is still ticking,” Mr. Shulman said of the amnesty, which expires Sept. 23. “There is still time.”
He warned UBS customers that even if not notified that their information has been sent to the IRS, they “should not make the mistake of thinking they are still safe.”
Obama has good financial reason to close tax havens. This could boost US tax revenues, helping pay for healthcare reform. Senator Levin estimates the annual loss at $100 billion. No one knows for sure. But Mr. Baker says financial assets stowed in the Cayman Islands alone peaked at about $1.9 trillion, with an estimated half belonging to Americans.
Requiring more financial disclosure abroad might also make the world’s financial system safer. Huge amounts of “toxic” financial assets have been hidden in tax havens, some of which had to be repatriated, worsening last fall's near-meltdown of the financial system.
Why has the US not clamped down on foreign tax shelters years ago?
Baker suspects the reluctance is related to the political clout of the financial industry, with its many millions of campaign donations. US banks themselves have huge financial operations abroad, even in Switzerland and other tax havens. In some cases, says Baker, they can operate with minimal capital adequacy ratios, thereby permitting risky, highly leveraged investments.
At the end of the Clinton administration, Treasury Secretary Lawrence Summers contemplated an antitax haven program. His successor under President Bush did not follow up. The new emphasis was on tax reduction for the wealthy. Mr. Summers is now Obama’s top economic adviser.
Beware overseas tax cheats. The era of "wink, wink, nod nod" may be ending.