One of the sideshows during President-elect Trump’s slugfest through the elections was his refusal to disclose his full tax returns. The American sport of figuring out how to hide tax havens from Uncle Sam had perhaps gotten its all-time poster boy. Mr. Trump said, “America, you can’t see my tax return,” and that was that.
So really, what’s the big deal? Tax havens are heaven to countless tax dodgers. I know firsthand. As an American lawyer in Hong Kong, it’s a subject that I’ve had to counsel clients on from time to time. And from what I know of my clients’ experiences in the tax courts, Mr. Trump’s partial release, showing that he hadn’t paid any taxes in decades, would clearly indicate that he was in Tax Heaven.
The periodic arrest and jailing of colorful high-profile tax cheats like Al Capone, Wesley Snipes, Martha Stewart and Leona Helmsley remind us that there is a legal distinction between tax cheating and avoidance. The difference: the slammer or the White House.
It is time for all Americans to enjoy the benefits of Tax Heaven.
To accomplish that, the whole U.S. tax system must be reformed. Right now, it’s debilitating! That’s why Americans beat the IRS all the time by setting up offshore companies and opening bank accounts in tax havens. The IRS estimates that between one and two million Americans have overseas bank accounts – the sole purpose being to evade U.S. taxes. Many even renounce their U.S. citizenship to avoid paying taxes.
The Bank for International Settlements, which collects voluntary reports from banks in 44 countries, offers the best single source of data on tax havens. It counts around $31 trillion of foreign-owned assets in the world’s banks and estimates that about $4 trillion is in offshore financial centers.
The Tax Justice Network, a global research firm that is opposed to tax havens, suggests that the amount hidden offshore is between $21 trillion and $32 trillion. If properly taxed, those accounts could yield more than $200 billion in revenue around the world. A 2010 McKinsey & Company report estimated the world’s financial assets at around $200 trillion, which means that about 10 percent or more is effectively invisible in offshore accounts.
And, as I’ve written about at great length, I believe that money is probably in the hands of people and institutions that actively influence major government investment decisions and laws protecting the rich. In my book Custom Maid Revolution for New World Disorder, I write about how to remedy these abuses with constructive tax reforms, such as a flat tax for individuals and low capital gains tax on corporations to encourage Americans to keep their money at home.
The book includes a conversation with Steve Forbes, the publishing executive and former Republican presidential candidate, on his idea for a 17 percent flat tax on families earning more than $36,000 a year.
Interestingly, he dropped his flat tax proposal when he was running for president, so he could appear more mainstream. I asked him why.
“Because that was the only way I could get the party establishment to consider supporting me,” he said.
Mr. Trump didn’t need the Republican Party to win the presidency. But he does need the party’s support in Congress. Hopefully the party will get behind his tax reform proposals. Because what we have now is crazy. Corporate income is currently taxed at 35 percent, which rises to about 40 percent when state taxes and other fees are added. So you wonder why people are taking their money overseas?
But now there may be a viable alternative. As part of his overall tax reform proposal, Mr. Trump will be sending Congress a revision in the corporate tax rate, so that it will max out at 15 percent. He believes that that’s the only way to get the overseas investors to return those trillions of offshore dollars to American banks and commerce. The return could be huge. Corporate America holds more than an estimated $2.5 trillion overseas. Allowing them to bring that money home tax free, or only pay 15 percent if they have not paid any tax overseas, would return more than one percent of GDP into American coffers. Longer term, the tax cut would increase corporate capital investment, leading to higher real wages and pretax profits – and therefore higher tax revenue.
I applaud that proposal. It would be an enormous incentive for the big corporations to expand their footprint, and hire more workers at decent paying jobs. But Mr. Trump must also eliminate the tax penalty on American firms that repatriate profits earned by their foreign subsidiaries. The current tax code penalizes American firms that repatriate profits earned overseas.
Tax reform must be the president-elect’s top domestic issue after he takes office January 20th. America can and must be converted from a tax hell to a tax heaven. Personal income taxes, like the proposed corporate tax, should be flat taxed at 15 percent. A well-designed and efficient reform of personal and business taxes can raise productivity, number of jobs and real wages – giving all Americans better job opportunities and wage earners more disposable income to spend – a double win for America.