4.11.2016

How to Avoid Paying Taxes

It’s tax season once again and the recent Panama Papers “scandal” has highlighted the various ways individuals and corporations are scheming to avoid paying them.

The Prime Minister of Iceland and his wife were the first to receive notoriety when it was revealed they had transferred a goodly sum of their assets to the Virgin Islands. The Prime Minister announced his resignation, then backtracked, saying he only stepped aside for a short period. Now it appears he will be replaced by the agriculture and fisheries minister, after all. So it goes.

According to Cass Sunstein (New York Review of Books (1/14/16) many individuals in the United States and elsewhere have been transferring their money to foreign countries—Switzerland, Luxembourg and the Virgin Islands. In this way they have been able to avoid paying taxes in their home country.

Drawing on the work of Gabriel Zucman in his The Hidden Wealth of Nations, Sunstein says the magnitude of these transfers is considerable.

• About 8 percent of the word’s wealth, $7.6 trillion is held in tax havens.

• As a result, governments lose about $200 billion in tax revenue each year.

• In the United States, the annual tax loss is $35 billion; it Europe it is $78 billion.

While awareness of these figures is growing and the issue has been much discussed, to date no major “crackdown” has occurred.

James Surowiecki describes (New Yorker, 1/11/16) a somewhat similar tax avoidance strategy of large, multinational corporations. It is not (currently) illegal for American corporations to locate their operations outside this country and more and more of them are doing this to avoid paying US taxes.

He also discussed Pfizer’s recently announced merger with the Irish drug company Allergan. Pfizer was planning to reconstitute itself as an Irish company, thereby lowering its overall United States taxes. However, the plan was recently called off after the Treasury Department removed many of the tax benefits of such a merger.

In January of this year, before the new Treasury Department rules were in place, Johnson Controls announced its merger with Tyco International also based in Ireland. By doing this, the Times editorial page (1/29/16) claims they will avoid taxes in the United States “by at least 150 million a year.”

In commenting on tax inversions, Sunstein suggests that regardless of political party, it is unlikely you would approve of illegal corporate tax havens. Here is an area he believes “in which significant reforms might appeal to people who otherwise disagree on a great deal.”

Why am I writing about this? I am not an economist and I know little of the ins and outs of tax law. Yet it seems to me just another form corporate and individual irresponsibility.

I am dismayed when I think about the billions of dollars that are not paid to the government and, if they were, the potential benefits that might accrue. At the very least, it is clear that this is yet another reason why the United States tax system is long overdue for changes.

I am but one among millions, my words are scarcely heard, they count for nothing, but I cannot avoid expressing them.