Of blood and manure

Sky high gasoline and oil prices, thousands of home mortgage foreclosures daily, U.S. troops dying in two foreign wars; all this is driving Americans to distraction.

Meanwhile, up in the rarefied atmosphere of Capitol Hill, the US Senate is engaged in a phoney war on offshore tax havens. Day after day eager senators demagogically play to the news media gallery with bombastic and false statements about billions in lost taxes offshore.

Last week it was Creeping Levinism (D-Mich) attacking Switzerland and Liechtenstein, stupidly arguing that all Americans with offshore bank accounts, which are fully legal, should be treated as suspect tax evaders.

This week it’s that dynamic US Senate Finance Committee duo of Baucus (D-Mont) and Grassley (R-Iowa) dumping all over the Cayman Islands, claiming that any American corporation with a subsidiary company offshore, which is fully legal, should be treated as suspect tax dodgers.

The Baucus/Grassley show was based on a report the two senatorial pals ordered from the Government Accountability Office, the congressional watchdog agency, to investigate Ugland House in the Caymans that is listed as the business address for corporate subsidiaries of more than 18,500 US companies, a number that has nearly doubled in the past four years.

About half of the companies with addresses at the Ugland House are American. The principal tenant of the building is the well respected international law firm of Maples and Calder, which performs incorporations for global clients.

Possibly trying to keep a straight face, Senator Baucus said that ‘this building in the Caymans’ is one of the most likely places shady tax transactions could be sheltered. If American companies are setting up shop at the beach just to avoid their tax obligations, we can’t keep our heads in the sand. We must make sure honest American taxpayers are not footing the bill for corporations that aren’t paying their fair share.’ Bravo, Senator! Go get ’em!

But please note the false premise of this Baucus syllogism, (a deductive scheme of formal argument, I was taught at Georgetown U., consisting of a major and a minor premise and a conclusion). His false premise is that if’ a US company has an address at this building, on that grounds alone, the company automatically is suspect of tax evasion, a totally false conclusion.

When I was in politics this sort of exercise was called setting up a ‘straw man’ – defining an object on your own terms, then attacking it for fun and political profit.

The reason American corporations form offshore companies is to take advantage of US tax laws that allow tax credits and other tax breaks for earnings that are gained offshore and kept there. This is done to avoid legally the onerous U.S. corporate tax rate of 35 per cent – one of the highest in the world – and a major reason why US companies find it difficult to compete globally. By the way, senators, that high tax means lost American jobs and fewer taxes paid by US workers.

US companies also use offshore tax havens like the Cayman Islands to reduce their foreign tax liability.

Much of this anti-tax haven bologna consist of an escalating numbers game of how much annual tax loss the IRS suffers because of alleged offshore tax evasion.

Senator Carl Levin, in recent years, has upped the fictitious lost tax number he invented from $50 billion to $100 billion. But at the Finance Committee hearing, Senator Baucus blew the roof off, claiming that the Senate must ‘find legislative solutions to pressure the IRS and better enable them to collect on the nearly $345 billion annually of legally owed but unpaid taxes,’ according to Tax News.com

Several economists and tax experts dispute even the $100 billion number. They say a surge in the number of companies based in the Cayman Islands does not correlate with lost taxes. By comparison, they point out that America itself is one of the largest tax havens in the world, (for foreigners, but not for Americans), with more than 850,000 companies registered in the State of Delaware alone, including one Wilmington building where more than 200,000 companies have an address.

Another reason companies invest in a tax haven is to defer legally US taxation of foreign income. Unlike many countries, including the European Union, America taxes income earned both at home and abroad. But if this money is reinvested abroad, the tax is deferred.

The lost tax revenue from the legally deferral of income from American investments abroad totalled $11.9 billion last year and is expected to reach $12.8 billion by the end of this year, according to estimates from the Office of Management and Budget. By 2010, that number will reach $14.6 billion, OMB estimates.

Damned, if I don’t get tired having to do the job of a lazy, and no doubt, biased, ‘news’ media that doesn’t seem to care one bit about the truth about offshore tax havens.

The politicians in Congress in both parties are far more concerned about getting headlines and their own re-election than they are about helping American business or American taxpayers.

I leave you to ponder this quotation from the late President and leading agriculturist, Thomas Jefferson of Monticello: ‘The tree of liberty must be refreshed from time to time with the blood of patriots and tyrants. It is its natural manure.’

And there is no place in the world where there is more natural manure (or tyrants) to be found than in Washington, D.C. – especially on Capitol Hill.

Robert Bauman

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