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Offshore tax cheats

An entire industry of lawyers and tax professionals is helping wealthy Americans avoid paying billions in taxes a year. Congress should act.

By TIMES EDITORIALS
Published August 2, 2006

It's bad enough that the superrich pull political strings to shift the tax burden to the middle class. But a yearlong Senate investigation revealed another scam Tuesday: Some of the wealthiest Americans increasingly use offshore tax havens to "illegally evade" tens of billions of dollars in U.S. taxes every year.

The sheer size of the dodge should spur Congress to crack down on the cheating. The 400-page report by the investigative panel of the Homeland Security and Governmental Affairs Committee found that offshore abuses are not only widespread but are "reaching new levels of sophistication."

U.S. multinational companies nearly doubled, to $150-billion, the profits they chalked up to offshore enterprises between 1999 and 2002. Half a million Americans have offshore accounts they can access with foreign bank cards. Investigators estimate that Americans have more than $1-trillion in assets offshore. An entire industry of lawyers and tax professionals help them dodge between $40-billion and $70-billion in taxes annually.

IRS commissioner Mark Everson told the subcommittee Tuesday that globalization made it easier for rich Americans to hide money in havens overseas. The U.S. owner of a Cayman Islands bank said that very thing five years ago, telling the subcommittee that perhaps all of his clients were evading taxes. After issuing 74 subpoenas, conducting more than 80 interviews and examining 2-million pages of documents, investigators did not break new ground as much as add to the picture of how routine cheating has become. An entire industry of lawyers and tax professionals, the subcommittee found, is "helping U.S. citizens conceal and secretly utilize offshore assets, while undermining, circumventing or violating U.S. tax, securities and anti-money laundering laws."

Americans use a range of schemes to move assets, conceal who owns them and frustrate the attempt by regulators to collect taxes owed the government. Sen. Carl Levin, D-Mich., whose staff compiled the report, wants more reporting and disclosure requirements and expanded enforcement authority to force financial institutions offshore to clean up their act. But Congress and the administration can act at home, too, by adopting new anti-money laundering programs and requiring companies and banks to more closely register and track taxable assets.

The legal and financial services industries also need to be held responsible for engineering abuses for their clients. We saw how the insider trading and phony accounting scandals forced Wall Street and corporate America to change their practices several years ago. It's time to apply that same public pressure to the tax haven industry, before even more of the tax burden is shifted onto the backs of average, honest taxpayers.

[Last modified August 2, 2006, 01:26:51]