Credit the Obama Administration with a unique effort forcing wealthy tax cheats to pay a fair share of government expenses. A provision in the recently enacted jobs bill could yield an estimated $100 billion lost annually to the IRS from tax cheating on a gigantic scale.
Individual tax cheats have diverted an estimated $1 trillion in offshore accounts (chiefly Swiss banks) avoiding $70 billion in annual taxes. Corporate cheating adds another $30 billion.
Previous administrations have been inexcusably apathetic about this massive tax cheating by the rich.
Key to this reform is a provision levying a 30 percent tax on foreign financial institutions’ U.S. investments if they refuse to report information about American tax cheats hiding money in foreign banks.
The law sailed through Congress, unopposed by U.S. banks. They stand to profit from a crackdown on foreign banks, getting business from clients made honest by the foreign banks’ reporting requirement.
The law also closes a loophole exploited by corrupt hedge-fund managers to evade taxes on corporate dividends. Here’s how it works: A hedge fund holding clients’ stock negotiates a swap agreement with a financial institution. It sells the stock just before a dividend payment. After the dividend payment, it cancels the swap, and the stock, plus the dividend equivalent, reverts to the original owners. The transaction-administering bank charges a fee, its share of the tax cheats’ savings in avoiding the dividend tax.
Other tax outrages figuratively scream for reform. Parasitic hedge-fund managers exploit a mind-boggling tax favor. Their fees generally qualify for a 15 percent capital gains rate, less than half the 35 percent rate paid by doctors, engineers, architects, accountants and other professionals who, unlike hedge-fund managers, do useful work. Last year, the top hedge-fund manager made $4 billion, $2 million per hour, 40,000 times as much as his secretary (if she made $100,000). Yet the secretary’s top tax rate was nearly double her billionaire boss’.
Repealing this idiotic tax favor could yield some $5 billion a year.
Congressmen voting for repeal of this tax loophole would, of course, lose their bribes (aka campaign contributions) from plutocratic hedge-fund managers. That’s the only conceivable reason for their continuing to reward speculators who helped promote the 2008 financial meltdown with their reckless innovations.
C.W. Griffin has lived in Ahwatukee Foothills since 1988. He is a retired consulting engineer and a published author.