David Cay Johnston reports in Tuesday’s New York Times about fraudulent offshore tax shelters that cost the Treasury $70 billion a year. The story, based on a Senate report, has some interesting detail, including the role of a Cravath, Swaine partner who used to head the tax section of the ABA in issuing opinion letters that his clients could then use to demonstrate a good-faith belief that the activity was legal.
The question of who at the IRS has been asleep at the switch, or why the Bush Administration hasn’t moved resources into catching super-rich tax cheats, isn’t even mentioned.
The basic problem is that much of the Republican Party doesn’t actually disapprove of tax cheating, unless it involves the working poor and the Earned Income Tax Credit.
It is, as I recall, Democratic administrations that have a penchant for pardoning tax fraudsters who hide out overseas, but don’t let reality interfere with your fantasies.
Kevin Drum and Mark Thoma have more. But query – is David’s middle name “Cay”?
y81,
Democratic Administrations have a penchant for such behavior? Fantasy verses reality. Which one is true? Well, I dont think it takes much research to learn that the problem has increased dramatically the past five years. But this is as if partisan politics was even a decisive factor.
Its capitalism and the bosses always trying to find ways to squeeze out of their responsibilites. They like to lobby for such perogatives. Gee, which party has been lobbied the hardest to “liberalize” tax policy? – The Republicans. So again, just a fairly cursory analysis yields no fantasy.
Ass
I discuss the root cause of this problem in my book. Essentially neither side of the aisle shows any interest in giving the IRS adequate resources to catch tax cheats and neither side wants the IRS to audit wealthy individuals or LLP’s, LLC’s etc. at rates commensurate to the amount of additional tax revenue those audits would likely generate.
Troubling fact: the formula used by IRS computers to decide who gets audited is over thirty years old and neither party has given them the money they need to update it. Thus even if audit choices were motivated by a sensible principle like profit maximization, the IRS wouldn’t be able to catch cheaters at anything near high rates because their formula for catching them can’t reflect the most recent innovations in the tax minimization industry.
I hope to read the book, but haven’t yet done so. Maybe I will change my mind after reading it, but…it seems to me that the mixture of a very complex tax code, an IRS that makes up rules on the fly (the IRS definition of a “fake transaction” is, basically, “we’d have collected more taxes without the transaction”), and a legal system that requires tax advisers to plead guilty (since an indictment will put them out of business even if they win a trial–cf Andersen) means that it is almost impossible to determine whether your legitimate business dealings will be considered tax evasion or not.