Campaign Sounds of Silence

[Valin]

The American Interest:

In early September, AI publisher Charles Davidson spoke with Jack Blum—chairman of Tax Justice Network USA and one of the world’s premier experts on tax evasion, money laundering, banking and real estate scams, and corporate fraud—about the failure of both presidential campaigns to face up to America’s serious budget and taxation problems. What follows is an excerpt of their conversation, the full transcript of which will appear online soon.

10/3/12

 

Jack Blum: I’m very concerned about the quality of the debate we’ve heard in this campaign so far, particularly the failure of both parties and both candidates to discuss the real issues underlying the matrix of our budget, revenue and taxation challenges. Both candidates identify the real problems as the vast enlargement of the so-called entitlement programs—Social Security and Medicare, in particular—and ignore the breakdown on the revenue side of the picture. I’m not talking mainly about increasing tax rates, although that’s a relevant discussion we should have; I’m talking about the loophole-ridden system that allows those wealthy enough to hire clever lawyers and accountants to write off just about everything, while the rest of us are stuck with withholding at the source, and can’t write off much of anything at all.

 

The truth is that the country is going broke because of invisible offshore tax arrangements that facilitate putting together piles of money that remain untaxed. If you look at Mitt Romney’s tax return and wonder how he got to such low rates, well, Romney knows how the system works, and what he may not know, his adviser Bradford Malt does, because he is a pioneer in arbitraging the distinction between tax avoidance and tax evasion. President Obama has not discussed corporate tax evasion either. It boggles the mind that many successful corporations in the United States essentially pay no tax, and these are the income-shifters and inequality makers of our time, the companies that are moving American jobs and profits offshore. These are companies that organize exotic systems like the double-dutch transfer pricing schemes in which profits are attributed to some place, like Bermuda, where they don’t even have an office, let alone do any actual business.

 

And there’s plenty more we’ve not heard a word about, like the whole idea of “carried interest”, for example, which accounts in large part to allowing people like Mitt Romney to avoid paying much tax. Carried interest is what’s left over for investment bank managers and hedge fund operators to split up once an investment pays back its investors and leaps the contractual “hurdle rate.” But to tax carried interest as capital gains instead of ordinary income makes no sense at all. Moreover, hedge funds are typically set up and operated through offshore entities. Those who run them and those with whom they trade may be and often are in the United States. A firm located in Greenwich, Connecticut, with clients in Manhattan or Palo Alto can trade on American exchanges and do business with American institutions, all the while claiming the activity is offshore and hence not subject to taxation.

 

(Snip)