Republican members of Congress must enjoy pathetic approval ratings, because they’re apparently already raising hell about President Obama’s call for a Congressional crackdown on offshore tax havens. And what could beat the populist appeal of standing up for thieving billionaires! Obama figures his get-tough approach (see below) could bring the Treasury an extra $210 billion over ten years. Obama, of course, is a pragmatist. Last time we touched base with Sen. Carl Levin, the Michigan Democrat, he was blaming the tax cheats for Treasury losses of $100 billion—per year.
As chair of the Permanent Subcommittee on Investigations, Levin was then looking into dubious dealings by international banking conglomerate UBS—where our old pal Phil Gramm served as a vice chairman soon after pushing through legislation that brought down the economy. Another investigative target was IGT, the Liechtenstein bank owned by that principality’s royal family. “The IRS doesn’t have the money, the time, or the legal tools it needs to stop offshore abuses,” Levin told Mojo contributor Peter Stone, who wrote this piece on offshore tax shenanigans for our November/December 2008 issue.
Former UBS banker Bradley Birkenfeld, Stone reported, told Levin’s committee that he’d been trained in illegal procedures and given a laptop with encryption software to hide its contents from US agents. The bank didn’t deny that its US clients kept some $18 billion in 19,000 undeclared Swiss accounts—which earned UBS about $200 million per year, Birkenfeld told prosecutors. (Appearing before Congress, a top UBS exec even apologized, but his company still wasn’t naming names.)
Among Obama’s proposed reforms: 1) Hire 800 new IRS investigators to police the cheaters. 2) Strip away US companies’ tax deductions on offshore investments until they first pay their taxes on offshore profits. 3) Close a legal parlor trick that lets American firms shunt income between foreign subsidiaries in such a way that they end up owing no taxes.
A bit of leadership on this stuff would be a refreshing change, since IRS enforcement was on ice throughout the Bush administration. Okay, it’s not like Bill Clinton did a whole lot about the problem, either. But the illegal practices have proliferated like mad since Ken Silverstein wrote us this Bahamian financial romp back in 2000. And the writing was on the wall even then.
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