Wednesday, April 6, 2016
A funny thing happened in Panama
For many The Panama Papers confirm the worst fears that a tremendous amount of money is being hid in offshore accounts to avoid paying taxes, denying many struggling countries of the revenues they need to meet their massive budget shortfalls. These papers also point to world leaders who project themselves as men of the people only to have socked away millions, if not billions in offshore accounts for a rainy day.
President Obama was quick to respond to the Papers by issuing a directive to the Treasury Dept. to stop corporate tax inversions, whereby an American company like Pfizer can merge with a foreign company like Irish-based Allergan to change its legal place of residence and avoid paying taxes in the higher-taxed country. Of course, the good folks at Forbes claim the real problem here is the uncompetitive US corporate tax code, but when the effective corporate tax rate is much less than the 35 per cent rate, one has to ask if lowering the tax rate will yield any greater compliance with US tax codes.
Fact of the matter is that there are a whole lot of ways to dodge taxes. It is estimated that US companies alone are hiding $2.1 trillion overseas to avoid paying taxes, including such big names like Apple, Microsoft an Google. While perfectly legal, it does point to questionable ethics on the part of companies that promote economic fairness.
This has become a big issue on the campaign trail, which Bernie Sanders has harped upon repeatedly and now can say "I told you so." This moneyed-class claims it cannot pay a fair minimum wage because of high corporate taxes and health care, yet its CEO's earn "yuge" pay checks and use any hook or crook to boost the value of their company dividends so that stock holders stay happy, in turn rewarding CEO's with even bigger salaries and bonuses. The average Dick and Jane have to apply for food stamps or worse just to make ends meet. Bernie has been telling anyone who would listen that this is a wicked game we are playing and now may reap the electoral rewards of this bombshell disclosure.
The Panama Papers is the biggest story to date by The International Consortium of Investigative Journalists, which has been following the money. This story pulls the cover off the ongoing money-laundering schemes by Mossack Fonseca, one of several international law firms that specialize in offshore operations. For its part, MF claims its activities are above board and if there are any irregularities it is because of the failings of intermediaries.
Of course, countries could stop these inversions and offshore accounts immediately if they sharpened their tax codes, but it is unlikely that these lawmakers will bite the hands that feed them. So, don't expect Congress to act on Obama's initiative. Instead, you will hear more calls to lower the corporate tax rate, claiming that this will stop corporations from stashing their money overseas. Yea, and I've got some beach front property in Panama to sell you.