Politicians from France and Germany are infamous for whining about “unfair” competition from low-tax jurisdictions. It is embarrassing to note that there are politicians in the United States with the same sore-loser attitude. With Senator Levin of Michigan as the ringleader, three senators have introduced an anti-tax haven bill that would impose onerous new burdens on taxpayers while dramatically increasing the power of the Internal Revenue Service. The sponsors make a number of completely inaccurate assertions, including a claim that so-called tax havens account for $100 billion of lost tax revenue. Even a cursory review of IRS data, however, show that the vast majority of the “tax gap” is from small business taxpayers. But Levin’s attitude apparently is that facts should not get in the way of good press release. The legislation has numerous other problems, most notably the fact that is almost certainly would put the US in violation of World Trade Organization obligations and that it would make foreign-managed hedge funds more competitive by imposing onerous regulatory burdens on US funds (much as Sarbanes-Oxley helped Hong Kong and London become much more attractive places for venture capital business such as IPOs). The Washington Post reports on the bill’s introduction:
Three senators proposed legislation that would target what they say is $100 billion a year in tax revenue lost each year because of overseas tax havens, in part by forcing hedge funds to track their foreign investors. The measure would impose tougher requirements on U.S. taxpayers using offshore secrecy jurisdictions, give the U.S. Treasury the authority to take action against foreign jurisdictions that impede tax enforcement, stiffen penalties against abusers and close offshore trust loopholes, according to a summary of the bill released by Michigan Democrat Carl M. Levin. …”We cannot tolerate tax cheats offloading their unpaid taxes onto the backs of honest taxpayers,” Levin said in a joint statement with co-sponsors Norm Coleman (R-Minn.) and Barack Obama (D-Ill.). “Offshore tax havens have declared economic war on honest taxpayers by helping tax cheats hide income and assets that should be taxed in the same way as other Americans.” The Treasury Department and top lawmakers in both houses of Congress have made a priority this year reducing the so-called tax gap, the difference between what individuals and companies owe and what they pay. The IRS said a study of 2001 tax returns shows the tax gap is about $345 billion a year, only $55 billion of which is recovered.