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August 1, 2017


This is an essay drawing heavily on Piketty in his book Capital in the Twenty-First Century, who though admitting the idea is utopian and not likely to be adopted anywhere near soon, favors a global tax on capital but first must have some knowledge of who owns what and where. He is not so interested in such a tax for revenue as he is to obtain banking data in order to include information on assets held in foreign banks. Currently, as is well-known, there is massive fraud involved in bank secrecy practices in several countries who vie with one another for financial assets from offshore depositors who wish to escape the view of their taxing authorities back home.

There is, for instance, the opaque example of the 2013 crisis in the Bank of Cyprus. This Cypriot bank (a bank in which Trump’s current Commerce Secretary, Wilbur Ross, was a co-director along with a Russian before Ross came to Washington) is a well-known money-laundering operation for Putin and his kleptomaniacs to convert rubles into dollar investments in the United States, Europe and elsewhere.

Piketty notes in such connection that “The international organizations currently responsible for overseeing and regulating the global financial system, starting with the IMF, have only a very rough idea of the global distribution of financial assets, and in particular of the amount of assets hidden in tax havens. . . Take, for example, the Cypriot banking crisis of 2013. Neither the European authorities nor the IMF had much information about who exactly owned the financial assets deposited in Cyprus or what amounts they owned, hence their proposed solutions proved crude and ineffective.”

There is no technical obstacle in this day of computers in having such tax havens report banking data to the appropriate tax and regulatory authorities, as urged by those who want to keep the present system of secrecy intact. Other arguments and excuses by those who wish to maintain bank secrecy include the almost laughable excuse that governments would misuse the information. The fact (as noted by Piketty) is this: “That the reason tax havens defend bank secrecy is that it allows their clients to evade their fiscal obligations, thereby allowing the tax havens to share in the gains, which has nothing to do with the principles of the market economy.” He is right to a fault.

Piketty also notes the anti-social nature of such a scheme as follows: “No one has the right to set his own tax rates. It is not right for individuals to grow wealthy from free trade and economic integration only to rake off the profits at the expense of their neighbors. That is outright theft.” He is right, and that is not the only theft the rich and corporate class are pulling off on the rest of us. In addition to such tax avoidance and evasion schemes carried out offshore, many of such corporate thieves have stolen and are continuing to steal increases in worker productivity and stuffing the proceeds into their capital gains pockets rather than sharing such increases with those who made such increases possible – the workers – as wage inequality accelerates and 99 percent of the economy’s gains go to overflowing capital ledgers.

While (per Piketty) much of Europe was able to unite around the euro as a single currency, little to nothing has been done in the area of taxation. Perhaps surprisingly, it is the United States that adopted legislation with teeth to end these brazen international tax dodges with passage of the Foreign Account Tax Compliance Act (FATCA) in 2010 and scheduled to be phased in by stages in 2014 and 2015. The Act requires all foreign banks to inform the Treasury Department about bank accounts and investments held abroad by U.S. taxpayers, along with any other sources of revenue from which they may benefit.

By contrast, the EU’s directive on foreign savings only applies to European banks and has no application as the worldwide FATCA does. Further, the EU directive only applies to interest-bearing accounts and not to stock portfolios, whereas both are covered by FATCA. Piketty notes yet further that “Even though the European directive is timid and almost meaningless, it is not enforced since, despite numerous discussions and proposed amendments, Luxembourg and Austria managed to win from other EU member states an agreement to extend their exemption from automatic data reporting and retain their right to share information only on formal request. This system, which also applies to Switzerland and other territories outside the European Union, means that a government must already possess something close to proof of fraud in order to obtain information about the foreign bank account of one of its citizens. This obviously limits drastically the ability to detect and control fraud.” Well, yes, this is a classic case of putting the cart before the horse since the inquiring country needs the information in possession of the banks in order to establish if there has in fact been tax evasion by the citizens.

Unfortunately, FATCA, though far better than the EU’s weak and unenforced directives in this area, is also insufficient to cover the waterfront of tax avoidance and evasion by American citizens. It needs amendment to strengthen the hand of tax regulators. Again unfortunately, FATCA’s language is not itself sufficiently precise or comprehensive. Result? Certain trust funds and foundations can avoid any obligation to report their assets. Additionally, FATCA’s language does not cover banks who are foreign-based and do not do business in the U.S., apparently due to the need for nexus and sensitivity to sovereignty. Thus, smaller banks that are foreign-based and do not do business in the U.S. (as the big Swiss and other tax-haven banks do) could and do manage the assets of U.S. and European taxpayers without conveying any information to the authorities – a giant loophole in need of amendatory fix.

Finally, and who am I to even mildly disagree with a legend like Piketty, he notes that countries like France with 60 million people and Germany with 80 million people are primarily interested not in the revenues such transparent banking data would bring in but rather in facilitating enforcement of domestic tax rules and laws. I here note that I think both enforcement and revenues are involved in the U.S. because we are a country with 330 million people and more rich people who want to hide their money than any other country by far, so with lost tax revenues running into the billions per annum (not to mention that such hidden assets are not reinvested in America and that you and I have to make up for the shortfall in evaded taxes), I think revenues are to be considered as a motivating factor for enforcement as well in this country.

So, think this discussion is just idle chatter and has nothing to do with you? Think again. You are bankrolling this operation in tax evasion because what the evaders don’t pay you do. What to do? Tell your people in Congress to toughen and tighten up the language of FATCA to cover all loopholes, including the smaller banks overseas which are currently exempted from FACTA. So how do we enforce such new amended provisions of the Act against banks not doing business in the U.S.? Easy. Sanction the countries in which they are based until such countries require their currently exempted banks to comply with the provisions of our newly-amended FACTA.

Result? When the evaders have no place to go, they will, like the rest of us, pay their fair share of the load or, if not, pay penalties and interest and perhaps go to jail, all in keeping with Section One of the Fourteenth Amendment of our Constitution, which guarantees Equal Protection of the Laws to all of us.    GERALD     E




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