So the first impulse is to discuss these Panama Papers in terms of the big crooks like Valdimir Putin. But let’s hope they get some traction on the presidential campaign trail and put the issue of tax havens at the center of the debate.
Yeah, we all know about Swiss banks and the Cayman Islands, and just figure that rich people have this wired and this is how it will always be. But it doesn’t have to. In fact, it has changed a little bit for the better recently. Wanna take a guess who’s been trying to do the changing, and who’s stood in the way?
First, a little background. The best estimate for the kinds of tax havens discussed in the Panama leaks is that they drain about $165 billion a year from federal revenue coffers. Gabriel Zucman, a leading expert on them, estimates that the U.S. government loses $35 billion from individual tax evaders, and $130 billion from corporate evaders. (His new book was just well-reviewed by Ethan Porter in Democracy, the journal I edit.)
One hundred and sixty-five billion dollars is a fair amount of money—more than you and I shelled out for any of the following categories of federal expenditure in 2015: health care and health research ($122 billion), transportation ($107 billion), education ($90 billion), or science-environment-energy ($70 billion). So we could use it.
In Europe, efforts started in the aughts to do something about this. The Bush administration wasn’t going to do much, of course. But after Barack Obama came in and the Democrats had control of both houses of Congress, Democrats—notably Michigan Sen. Carl Levin, but others too—sought to move legislation to address tax evasion.
And… they did! You probably didn’t hear about it at the time, because the effort didn’t generate nearly as many headlines as the Democratic effort to reform the financial system, address climate change, or pass a health care reform law. But note: The Democrats used their brief two-year period of total control of both the White House and Congress to address head-on about a half-dozen problems, and tax evasion was one of them.
The bill was called the Foreign Account Tax Compliance Act, or FATCA; how they managed not to tag that final “T” on there at the end is beyond me, someone was really asleep at the wheel. But anyway it passed. In the Senate, it actually enjoyed a modicum of bipartisan support, as 11 GOP senators voted for it (as opposed to 28 who opposed; Democrats backed it 55-1). But in the House, not a single Republican voted for the bill, as Nancy Pelosi let 38 nervous blue-dogs go and join all 174 Republicans.
So what did the bill do? Well, a lot of complicated things, some good, some bad, but in the main, it gave the IRS more authority to look abroad through global financial databases and figure out who might be a U.S. citizen and if so, what they might be owing Uncle Sam that they weren’t paying. It also required foreign financial institutions to report such relevant information about U.S. citizen residents to the U.S. government.
Sounds like a pretty legit thing for the government to be doing, if you ask me. But it involved the hated IRS, so naturally, you had all these hideous predictions from Republicans and conservatives about what FATCA was going to lead to. It was going to make presumptive criminals out of all U.S. citizens living abroad. It was going to compromise the privacy needs of banks. Best of all, FATCA, once fully implemented in July 2014, was going to bring about the official demise of the U.S. dollar. Snopes.com rated that one false.
The charge is being led by just the people you’d expect. Sen. Rand Paul introduced the bill to repeal FATCA, and sued the Treasury Department over it. Utah Sen. Mike Lee went on a barnstorming tour of Europe to drum up momentum for a repeal (that doesn’t seem to have to worked too well—the Organization for Economic Co-Operation and Development issued its own tax-haven enforcement guidelines, which are for the most part tougher than FATCA’s).
But it isn’t just the fringy, von Mises-y, gold-standard crowd that’s worked up about FATCA. The Republican National Committee officially passed a resolution supporting its repeal (PDF). Interestingly, I looked at the RNC’s official resolutions from 2013-2016 inclusive, and for those four years, FATCA is the only piece of legislation singled out for a specific resolution of repeal. If that’s the case, FATCA must be doing something right.
FATCA and the OECD regs represent first steps in a process that’s going to take 20 or 30 years, if it succeeds even then. And the Democrats of course aren’t perfect on this. But at least most of them acknowledge this as an issue and are trying to do something about it.
On this point, I feel certain you’re going to be reading this week a lot about how Hillary Clinton supported a free-trade deal with Panama, the notorious tax haven whence these leaked documents came to us. This is true, but as a secretary of state working for a president who backed the deal, she could scarcely have done otherwise. And two other points are salient: one, trade deals are negotiated by the U.S. Trade Representative, not the Department of State, and two, the USTR did seek and obtain a tax information exchange agreement before the Obama administration was willing to cut the deal with Panama.
Obama’s not the enemy here. Nor is Clinton. The people on the wrong side of this one are the same people who always are, and whose dire predictions of economic catastrophe, whether about this or raising the minimum wage or anything else, almost never seem to come to pass.